: Why do stocks split? What is the purpose of a company splitting? E.g I have stocks worth 2.00 per share, and next day I find out that I have gain 800% in my account before the market opens.

Vote Up Vote Down   0 Reactions

Login to give Reaction!

Stock splits are typically done to increase the liquidity of stock merely by converting every stock of the company into multiple stocks of lower face value.

For example, if the initial face value of the stock was and the stock got split 10:1, the new face value of the stock would be each. This has a proportional effect on the market value of the stock also. If the stock was trading at , after the split the stock should ideally adjust to . This is to ensure that despite the stock split, the market capitalization of the company should remain the same.

Number of Shares * Stock Price = Market Capitalization = CONSTANT