What is a Stock Split?
A stock split divides existing shares into multiple shares, reducing the per-share price proportionally. Your total investment value stays the same—you just own more shares at a lower price per share.
4-for-1 Stock Split Example
Before
After
Key Point
A stock split doesn't change the value of your investment. It's like exchanging a $20 bill for two $10 bills—same total value, just different denominations.
Types of Stock Splits
📈 Forward Stock Split
Increases shares, decreases price. Makes stock more affordable to retail investors.
- 2-for-1: 100 shares → 200 shares
- 3-for-1: 100 shares → 300 shares
- 4-for-1: 100 shares → 400 shares
📉 Reverse Stock Split
Decreases shares, increases price. Often done to avoid delisting or appear more valuable.
- 1-for-10: 100 shares → 10 shares
- 1-for-5: 100 shares → 20 shares
- Often a warning sign of trouble
Cost Basis After a Split
Your cost basis per share is adjusted proportionally after a split:
- Forward split: Original cost basis ÷ split ratio = new cost basis per share
- Example: You bought at $200/share. After a 4-for-1 split, your cost basis is $50/share
- Total cost basis doesn't change—just spread across more shares
Automatic Tax Tracking
AllInvestView automatically adjusts your cost basis when stock splits occur, ensuring accurate capital gains calculations when you eventually sell.
Why Companies Split Stock
Forward Splits
- Affordability: Lower share prices make stock accessible to more investors
- Liquidity: More shares trading can increase liquidity
- Psychology: Some investors prefer "cheaper" stocks (irrational but real)
- Options trading: Standard contracts of 100 shares become more affordable
Reverse Splits
- Avoid delisting: Exchanges require minimum share prices
- Attract institutions: Some funds can't buy "penny stocks"
- Often a red flag: May signal underlying business problems
Frequently Asked Questions
Neither—your total investment value stays exactly the same. You own more shares at a proportionally lower price, or fewer shares at a higher price in a reverse split. It's purely a change in how ownership is divided.
Forward splits are generally positive signals—companies usually split when stock prices have risen significantly. Reverse splits are often negative signals, done by struggling companies to avoid delisting. But splits themselves don't change company fundamentals.
Dividend per share is adjusted proportionally. In a 2-for-1 split, you'd receive half the dividend per share but own twice as many shares—same total dividend payment. Companies typically announce the adjusted dividend rate post-split.
Options contracts are adjusted to reflect the split. Strike prices and contract sizes change proportionally. In a 2-for-1 split, a $100 strike becomes $50, and each contract now covers 200 shares instead of 100. Your position value stays the same.