What is a stock split?

A stock split increases the number of outstanding shares while proportionally adjusting the share price without changing market value. This means that while the number of shares a holder owns increases after a split, the price per share decreases by the same proportion, so the total value of the holding remains exactly the same immediately after the split takes effect. A stock split is a purely structural adjustment that does not alter the fundamental value of the company or the financial position of existing shareholders.

For example, in a 2-for-1 stock split, each shareholder receives twice as many shares at half the original price per share. If an investor held 100 shares of a company trading at $200 per share — representing a total value of $20,000 — after the split, they would hold 200 shares at $100 per share, with the total value still equal to $20,000. Other common split ratios include 3-for-1, 4-for-1, and even larger ratios. The principle remains the same regardless of the specific ratio applied.

Companies typically initiate stock splits when their share price has risen to levels that may be perceived as expensive or less accessible to smaller investors. By reducing the per-share price while maintaining the same total market capitalisation, a stock split makes the shares more affordable to a broader range of participants, potentially increasing trading activity, improving liquidity, and making the stock easier to include in diversified portfolios. Major companies such as Apple, Tesla, and Amazon have all executed significant stock splits in recent years for these reasons. It is important to understand that while a stock split does not change the company's fundamental value, the increased accessibility and liquidity that often follow can influence market dynamics and trading conditions in the period surrounding the event. For CFD traders, stock splits are reflected through automatic position adjustments on the platform. The number of CFD units and the price per unit are updated proportionally to mirror the split, ensuring that the trader's exposure and financial position remain unchanged.