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Reverse Splits
Reverse Split
Definition
A corporate action that reduces the number of outstanding shares while proportionally increasing the share price. A 1-for-10 reverse split turns 10 shares into 1.
Why It Matters
Reverse splits are usually negative signals. They're often used to avoid delisting from major exchanges when a stock falls below $1. The reduced share count can also make the stock more volatile.
Real Example
A stock trading at $0.50 does a 1-for-10 reverse split. You now have 1 share worth $5 instead of 10 shares worth $0.50 each. The value is the same, but the lower share count means each trade has a bigger percentage impact.