What Happens When a Stock Splits?

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When a stock splits, a company that is experiencing growth will split the price of the stock to make it more available to people purchasing in the stock market. For people who own shares in a company that does a stock split, the value of their holdings will remain the same but the number of shares will change. Find out more about stock splits from an investment manager in this free video on stock splits.

Part of the Video Series: Stocks & Mutual Fund Investments
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Video Transcript

So what happens when a stock splits? A stock split usually happens when the company's experiencing high growth, the price per share has got to a point where they might want to bring it down and make it more available for people who are purchasing in the secondary market. So what you will see in a stock split is say a stock goes to 100 dollars a share, they'll give you a 2 for 1 split which means for every 1 share you had before at 100 dollars a share, you'll have 2. And the next day when you look in the market instead of being 100 dollars a share, theoretically the price of the stock will be 50 dollars. So they split 2 shares out of 1 share. And that usually happens when a company again, has experienced very large growth, the price of the shares have become maybe prohibitive for the average person of they think they can increase the purchasing out there on the market by splitting the stock and bringing the price down to more affordable level.


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