Reverse Stock Split Term category: Stocks In 10 words or less: When a company increases their stock price by decreasing the number of shares.
Definition: A reverse stock split is a reduction in the corporation's total number of shares available and an increase in the stock price.
StockJargon Advice: A reverse split can occur for a variety of reasons; however, the two most common are as follows:
1.) Most mutual funds won't invest in a stock below $5/share. Some companies will reverse split their stock to try to get it above that level so mutual funds will invest in it. 2.) Stocks must remain above certain price levels to stay listed on a stock exchange. Companies might do this to stay listed.
A 1:2 reverse split means "1 new share for every 2 current shares." So if you owned 2 shares of a $3/share stock, you would then have 1 share of a $6/share stock after the split.
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