As you may be aware, Tesla announced last week (Aug 17, 2020) that they will be splitting their stocks at the end of the month. Tesla (TSLA) has announced a 5-for-1 split effective on the 31st of August.
What is a stock split?
A stock split is an action taken by companies who have witnessed an increase in share price to levels that are either too high or are beyond the price levels of similar companies in their sector, to divide their existing shares into two or more shares.
Why does a stock split occur?
The primary motive is to make the shares more affordable to small investors even though the underlying value of the company has not changed. Therefore, after bringing in a record Q2 revenue, Tesla would like its stock to be more accessible to a broader base of investors.
What is the split ratio?
Tesla announced it will split its stock in a 5-for-1 offering.
What does a stock split mean to investors?
Each share of Tesla stock that an investor owns before Ex-Date (Aug 31st, 2020) will be eligible for a stock split. E.g Tesla investors will receive four additional shares and the stock price will be one-fifth.
Important implications of the TSLA stock split
• The number of shares of each client’s position will multiply by five.
• Post-split, the open price of each position will be adjusted, which will be the original price divided by the new split number.
• The estimated post-split price will be 1/5th of the closing price on the 28th of August.
• All pending orders at the time of the split (Buy Limit, Sell Limit, Buy Stop, Sell Stop, Buy Stop Limit and Sell Stop Limit) will be deleted.
Please note: All open and pending Demo account TSLA orders will be deleted as of a result of the stock split. Stop losses and take profits will be removed.
Example of a stock split:
Let's say you hold 100 units in company A at a price of 1,600 USD per share and company A announces on X date, that it will be issuing a stock split of 4 for 1.
This means that, for every 1 share you hold, you will be issued 4. So now you will hold 400 units at the reduced price of 400 USD.
