We are going to cover what it means if a stock splits. There are two different kinds of splits and you need to know what they are if you plan on investing and owning stocks. They can be used to your advantage or to your disadvantage.

Companies who you own shares in can decide to change the number of shares they have in the market by doubling the number of shares, called a stock split, or they can reduce the number of shares, called a reverse split. Some people believe in splitting stocks and some dont. Take Warren Buffet for example who owns Bershire Hathaway, who has never allowed his stock to split. It has been above $10,000 a share now for quite some time and he still refuses to split the stock. The good side to this is that only wealthy investors can afford to invest in his company.

The most common reason that companies split their stocks are to manipulate the price of the stock. If the price of the stock goes to high, then some investors might not trade because of the amount of capital tied up in that stock. The volume of stock that has become to high has sometimes fallen due to investors not trading the stock. Each company is different, so there is no one formula that will tell you if or when it will happen.

If the price of a share of stock gets to low, that can hurt the stock. If you fall below a certain price for a certain amount of time, then the NASDAQ and the New York Stock Exchange can delist the stock, meaning they can take it off of the exchange from being traded. Some companies will use a reverse split in this situation to up the cost of their stock. Meaning if they were to do a one for three reverse split, then if the stock is going for.75, then the new price of one share would be $2.25. This way they up the value of the stock and run less chance of getting delisted.