In a forward split, each share becomes several shares and the price drops by the same ratio. In a reverse split, several shares combine into one and the price rises by the same ratio. Either way, the total value of your position stays the same at the moment of the split.
- Forward split (for example 2-for-1): more shares, lower price.
- Reverse split (for example 1-for-10): fewer shares, higher price.
- Your total value does not change on the split itself.
- Forward splits often follow a big rise in the share price.
- Reverse splits are often used to lift a low price above an exchange minimum.
How do forward and reverse splits compare?
| Forward split | Reverse split | |
|---|---|---|
| Example ratio | 2-for-1 | 1-for-10 |
| 100 shares become | 200 shares | 10 shares |
| A $40 price becomes | $20 | $400 |
| Total value | Same | Same |
The numbers above are a hypothetical example.
How do I read a split ratio?
The first number is what you get, and the second is what you had. 3-for-1 means every 1 share becomes 3. 1-for-20 means every 20 shares become 1. On Trade Conquest’s Upcoming Stock Splits page, forward splits are marked ▲ in green and reverse splits ▼ in red.
Why do companies do forward splits?
When a share price has climbed high, a forward split brings it to a lower price per share. That can make shares easier to buy in round amounts and can help with trading activity. It does not change the company’s value or its earnings.
Why do companies do reverse splits?
Reverse splits are often used to raise a low share price, for example to meet an exchange’s $1 minimum bid rule. Read our full guide, What Happens to My Shares in a Reverse Split?, for fractional shares and a free calculator.
Do I need to do anything when a stock splits?
Usually not. Your broker updates your shares and price automatically. Your cost basis per share changes, but your total cost stays the same. Open orders may be adjusted or cancelled, so check them after the split date.
Frequently asked questions
Is a stock split good or bad?
A split by itself does not change what your position is worth. What matters is the company behind it. Forward splits often follow a rising price, and reverse splits often follow a falling one.
What does a 2-for-1 split mean?
Every share you own becomes two shares, and the price per share is cut in half, so your total value stays the same.
What does a 1-for-10 reverse split mean?
Every 10 shares become 1 share, and the price per share rises about 10 times, so your total value stays the same at the moment of the split.
Do stock splits affect dividends?
The dividend per share is usually adjusted by the same ratio, so the total dividend you receive stays about the same.
More guides
Keep learning with these related guides, or see every guide and tool on the Learn page.
Sources
Not financial advice. This article is for educational purposes only and is not financial, investment, legal or tax advice. It is published by Trade Conquest, owned and operated by Nite Cat, LLC, 2885 Sanford Ave SW #35064, Grandville, MI 49418. Rules change; check the cited official sources for the latest version. Investing carries a risk of loss. Trade Conquest does not recommend buying or selling any security.