When this happens, then the stock holders hold twice as many shares than before.
The company's board of directors decides on the stock split.
When they do, then they increase the number of shares that they issue to the current shareholders.
This is how the stock trading market system works.
Take this for example, a 2-for-1 stock split has each shareholder having one stock receiving another share.
The value of the share is cut in half.
It's like getting 2 ten dollar bills when you give up a single 20 dollar bill.
The capitalization of the stock market remains constant despite the market capitalization.
Why the Stock Market System Splits? But why would company split their stocks in the first place? Companies do this when they see that the share has increased its price levels.
It is either too high or way beyond the normal price levels when compared to the other companies belonging in their sector.
As long as the primary motive of the stock market system is to make the shares affordable then the investors know that the value of the company has not changed.
A stock split leads to stock price increase depending on the decrease of the split.
Many small investors believe that the stock is more affordable when these happen because they buy the stock and then end up with a demand that increases the prices.
Stock Market Trading Technique that applies in splits Stocks can be split by ratios.
The most common stock splits are 3-for-1, 2-for-1 and 3-for-2.
Stocks can also be a reverse split.
The company decreases outstanding shares in order for the stock holder to hold a smaller amount of shares than he did before.
The proper stock market trading technique can withstand these splits and still work properly.
Reverse stocks splits are not as common as the traditional splits but these can be used for different reasons.
The price for every share might be low and be mistaken as a poor investment.
Companies turn to stock splits so that the company can try to stave off possibilities of being removed from the stock market exchange.
Another reason is for them to push out the minor stockholders which give way to private investors.
In a nutshell, the stock splits are used by companies that have observed the share prices increasing despite the turn of the market.
Capitalization does not change and the stock splits help make the shares more affordable to the new day traders.
Day traders must go through some kind of stock market trading tutorial in order for them to maximize the market no matter what split.