what is a reverse stock split?

A reverse split is a market event whereby a company decides to reduce the number of existing shares and in so doing, increase the value of each share according to a certain ratio. For example if the ratio is 1:2, the stockholder will have 1 share for every 2 shares previously held.

The amount of shares are reduced by the same ratio in order to offset the artificial rise in value, whilst maintaining the same overall value of the holding. The way we respond to a split is by adjusting the original opening rate of the affected trade to reflect the new rates after the reverse split and ensure that all subsequent profit calculations are correct.