There are two types of stock splits – forward stock split & reverse stock split. Forward stock split increases the number of shares, while reverse stock split decreases the number of shares. Stock splits however do not actually change the total value of a position as the stock price is adjusted by the same ratio at the same time.
Forward Stock Split example: if you hold 10 shares of ABC trading at $40 per share, after a 4 for 1 (4:1) forward stock split, you will own 40 shares valued at $10 per share.
Reverse Stock Split example: if you hold 10 shares of XYZ trading at $50 per share, after a 1 for 5 (1:5) reverse stock split, you will own 2 shares valued at $250 per share.
What happens to fractional shares?
For forward stock splits, any resulting fractional shares will be directly added to your position. For reverse stock splits, any resulting fractional shares typically will be either paid out as cash-in-lieu, or rounded up to the next whole share, depending on a company’s allocation decision.
What happens to pending GT90 orders?
For both forward and reverse stock splits, any pending/open options or equity stock GT90 orders are automatically cancelled either after market closes on the date prior to the effective date, or before market opens on the effective date.