How Stock Splits Work
In a stock split, a company increases its share count while proportionally reducing its price. A 2-for-1 split of a $200 stock creates two $100 shares. The total market capitalization does not change. Splits are often done to make shares more accessible to retail investors.
Splits and Retail Trading
Lower share prices after a split can attract more retail investor activity, as investors who could not afford single shares at the pre-split price can now buy multiple shares. This can increase trading volume and PFOF revenue for brokers and market makers during the period after a major stock split.
Fractional Shares and PFOF
Many discount brokers now offer fractional share purchases, allowing investors to buy portions of high-priced shares. Fractional share transactions typically involve the broker aggregating retail fractional orders and executing them in whole share lots — a process that may involve different routing arrangements than whole share orders.
Investor Considerations
Stock splits are economically neutral events — they do not change a company's value. Investors should evaluate splits on the basis of whether the company's underlying business merits investment at the adjusted price, not on the split mechanics themselves.