What is a stock split?
A Split is a market event whereby a company decides to divide its existing shares into multiple shares according to a certain ratio, i.e 1:5 or 1:3. For example if the ratio is 2:1, the stockholder will have 2 shares for every share previously held.
As a result, the value of each share is lowered by the same ratio to offset the artificial rise in value, whilst maintaining the same overall value.
The way we respond to a split is by adjusting the original opening rate of the affected trade to reflect the new rates after the split and ensure that all subsequent profit calculations are correct.
To read about a reverse stock split, click here.