Investing for Beginners , investing

Reverse stock split is a merge of existing company’s shares increasing its face value. For several owned shares an investor gets one share depending on reverse split ratio, when total outstanding shares number decreases proportionally. For example, if 1-for-10 reverse split is proceeding an investor instead of 1000 held shares will get 100 shares of higher face value. 

Usually reverse stock splits are initiated after very strong stock price decrease when management board sees that stock price level is too low. A signal that a stock price is too low can be if company’s shares gets in penny stock category, in which some funds are restricted to invest.

Reverse stock split is an opposite action to stock split. Read more about stock investment.