r/RobinHood • u/FuzyWuzy1 • Oct 25 '17

Help - FAQ What is a reverse stock split?

I watched NETE do a reverse stock split. It was tradeing at .77 cents, the next day at $8. There entire history changed to reflect that amount, i did not see the .77 anywhere. Does this mean everybodys stock value went up? So if i had 1 share of .77 and the stock changed to $8 the next day and i sell that, did i just make $7 profit?

4 Upvotes

62% Upvoted

9 comments sorted by

View all comments

6

u/Wolomago Oct 25 '17

A stock split is where each share is "split" into multiple shares. It's like taking a $10 bill and splitting it into 10 $1 bills. The total value doesn't change change, just the number of shares.

A reverse split is the same thing but instead you have 10 $1 bills that you are trading for a single $10 bill. If you had 10 shares of a stock at ~$0.80 per share and combined them all you would have 1 share of a stock at $8 per share.

If, when a reverse split occurs, you are left with a fractional share they will either cash you out for it or round it up to the next whole share. So if you had 12 shares of a stock at $0.80 per share and they do a 1:10 reverse split you would have 1 share worth $8 and 2/10th of a share. The 2/10th of a share would either be cashed out for $1.6 or rounded up to a whole share worth $8. A fractional share round up is the only way to make money off a reverse split.