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Share split (forward stock split)


If the price of a share has risen sharply, a listed company can have a share split carried out as a corporate action. The split should at least apparently make the share appear cheaper. From a psychological point of view, if the price is lower, more buyers are willing to make a purchase, especially since many shareholders only invest four-digit or low five-digit amounts. With a double-digit rate, the investor gets more shares for his capital. The circle of potential buyers can thus be expanded considerably, which in turn could result in long-term price increases. In practice, the shares are often split in a split ratio of 1: 2 or 1: 3, which consequently increases the number of shares outstanding. However, the market value does not change. The stock split is decided at the general meeting or an extraordinary meeting.


Here is a small example:


The share price of Aktienkabinett AG has risen to an amount of 180 euros. At the next Annual General Meeting, the shareholders of Aktienkabinett AG will decide on a 1: 2 share split. The price of the share is therefore cheaper to 90 euros. The number of outstanding shares doubles. The shareholder then receives one additional share for each share in his or her portfolio. Let's assume that the shareholder had 100 shares at a price of 180 euros per share of Aktienkabinett AG in his deposit before the share split (100 shares x 180 € = 18,000 €), then after the share split there are 200 shares at a price of € 90 per share in Aktienkabinett AG (200 shares x € 90 = € 18,000).


Stock consolidation (reverse split)


A publicly traded company can also reverse shares, which in this case is called a reverse split. In the case of a reverse split in the ratio of 2: 1, 2 shares become 1 share. A reverse stock split is also often carried out in order to increase a share price at least visually. The market value does not change here either. Nasdaq-listed corporations like to perform the reverse split when the share price drops below the US $ 1 mark.

The background to this measure is namely the risk of so-called "delisting" - removal from the list -  if the price of the company listed on the US technology exchange Nasdaq is below the value of 1 US dollar for 30 consecutive days. 

Speculators live on a fifth of the stock exchange, brokerage firms on four fifths. (André Kostolany)


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