Apple and Tesla Stock Split - What You Need To Know

August 28, 2020 15:30

Both Apple and Tesla have been making headlines in the investing world after they announced a stock split of 1:4 and 1:5 respectively that will take place on 31 August. Here's what you need to know about it!

What is a stock split?

A stock split is when a company divides its existing shares into multiple new shares at a lower price. The total monetary value of the shares stays the same while the number of total shares increases.

For example, if a company announced a 1:5 stock split, then every existing share would be split into five shares. Investors who owned just one share previously would now own five. The overall value of the investment won't change though. If one share was worth $500, the investor would now own five shares at $100 each.

Why do companies split shares?

When a company's share price has risen too high it can become expensive for many investors to buy even just one share. In this instance, companies may choose to initiate a stock split to make their share price cheaper to attract more investors. The fundamental value of the company does not change, however.

Due to the impact of the coronavirus, it makes a lot of sense that Apple and Tesla have announced a stock split. The lockdown period saw a huge rise in the amount of 'stay at home' traders and investors. As these types of traders typically start with smaller account sizes trading Tesla stock which was - at one point - trading above $2,000 per share can be difficult.

A stock split is simply designed to attract more smaller investors which adds more liquidity to a company's share price. This means you could potentially invest in Apple or Tesla shares at a much lower price after the stock split!

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What will happen with the Apple and Tesla stock split?

Both Apple and Tesla have announced a stock split that takes place after the market closes on 31 August, making it cheaper for traders to trade and invest.

Tesla is due to split its shares five for one. Apple is due to split its shares four for one.

For investors holding shares of Apple or Tesla over the reporting date, here is what you can expect:

  • The stock split will take place automatically with a new allocation of additional shares at the lower price
  • While the value of each share will decrease the total value of all the shares held will remain the same.
  • All pending orders (Buy Limit, Sell Limit, Buy Stop, Sell Stop, Stop Loss and Take Profit) will be cancelled.

This last point is one of the main consequences that these splits will have. These pending orders will be cancelled as the price will no longer be valid after the stock split. Open positions will remain but pending orders will be cancelled.

How do I trade the Apple and Tesla stock split?

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A screenshot of the Technical Insight Lookup indicator searching for Apple trading ideas on the MetaTrader 5 Supreme Edition platform provided by Admiral Markets.

In the above screenshot, the indicator notifies you of all the potential active trading events using different indicators and price action analysis. This means you can look for potential trading ideas on Apple and Tesla's stock price, as well as thousands of other asset classes such as currencies, commodities, indices and more!

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