Facebook Pixel

How to trade the split of Tesla and Apple shares?

24.08.2020

Shares of the giants Tesla and Apple reached historic highs just in the midst of the coronacrisis, and even now they continue to rise, despite fears of a global recession and slowdown in the global economy.

The record growth is the reason why the two companies have taken actions to split their shares, as their high prices currently make them inaccessible to small investors and their employees as wel. Tesla announced a split in ratio of 5:1, while Apple announced ratio of 4:1.

The splits of the shares of both companies are planned for August 28 (Friday), after the end of the trading session in the US, and from Monday, August 31, the two companies will be traded at the new lower price.

What does stock split mean?

A stock split is an operation by which a stock is divided into several parts. For example, a stock split in a ratio of 2 to 1 means that the share will be divided into 2. At a ratio of 4 to 1 the share will be divided into 4, and at 5 to 1 - into 5. Therefore, if we have one share that is subject to a split in a ratio of 5 to 1, after the split we will own 5 new shares.

In addition to the number of shares, their price also changes during a split. This is the main reason why companies are splitting their shares, especially after strong uptrends, such as those of Tesla and Apple currently. With a 5:1 split, for example, the price of the new shares will be 5 times lower.

The important thing is that the value of each shareholder's investment before and after the split always remains the same:

Before a split of 5:1 After a split of 5:1
Number of shares: 1 Number of shares: 5
Share price: $1000 Share price: $200
Investment value: 1000x1 = $1000 Investment value: 200x5 = $1000

How much will Tesla and Apple cost after the splits?

Currently, the price of Tesla shares is $1878 per share, making them one of the most expensive shares on Wall Street. With the announced split at a ratio of 5 to 1, the new price per share on August 31 is expected to be around $376 (in case the price remains the same until then). Accordingly, for each share held, Tesla investors will receive 4 additional shares.

Apple's shares currently have a market price of $463 per share and at a split of 4 to 1, this means that the new price would be around $116. The ratio shows that for each share held, investors in Apple will receive 3 additional shares.

These are only indicative prices, as stock prices are constantly changing and may undergo major changes until August 28.

Why do Tesla and Apple split their shares?

Both companies have risen significantly due to strong upward trends since the beginning of the year, which continue today. The big interest in the shares of these two companies is due to the prevailing positive assessments related to their fundamental performance. This interest has led to impressive returns, especially for Tesla investors.

Since the beginning of the year, Tesla shares have realized a return of an impressive 388%, and return of 712% for the last 12 months, which makes it one of the most profitable company on the market. The current price of nearly $1900 makes it difficult for many small investors who want to enter the market. By splitting the shares, their price will decrease five times, which will make them more attractive and affordable.

Despite the high share price, the average daily trading volume of Tesla shares is just over 13 million for the last three months. Volumes are expected to increase due to better liquidity than the lower price.

One of the main reasons why Tesla shares skyrocketed and become so appealing in the last few quarters, is because the company became profitable, something many analysts had said was not possible. There was also speculation about possible bankruptcy.

Tesla is a company that is entirely focused on innovation and the future - on the one hand, in terms of the electric cars produced, and on the other hand, in terms of the technologies used in their production. Precisely, because of Tesla's innovations, many investors see the company more as a high-tech than as a carmaker.

The return on Apple's shares since the beginning of the year is 56%, and more than twice bigger for the last 12 month - 118%, which brought the company closer to $30 billion out of the record $2 trillion for an American company. The smartphone maker already has four successful splits in the past.

In general, splits have an indirect effect on the share prices, as they are often perceived by the market as a positive sign of further growth in share prices. This does not mean that with a split of shares, the company will necessarily increase its market capitalization - something that is assumed by the majority of the market, as splits are usually made in similar cases, such as when prices rise.

The idea is that after the split, the new more affordable share price will attract more investors who can push prices further up. There is a logic in this statement, and there is often an increase in prices, especially if the company performs well and the price increase is fundamentally justified. But it is important to be clarified that the very split of shares has no fundamental effect on their value.

How will the change affect the MetaTrader platform?

BenchMark's MetaTrader platform allows shares of Tesla and Apple to be traded as CFDs. This financial instrument allows both buying and selling. In other words, it makes it possible a profit to be achieved in both directions - when the price rises (through purchases) and when it becomes cheaper (through short sales). And because contracts for difference are traded on margin, trades can be made without having to pay their full value.

For example, you can sell a CFD on Apple shares without having to own those shares. If the share price falls, the position in the CFD will win, but if the share rises, the position in the CFD will lose.

BenchMark offers excellent trading conditions for shares trading in MetaTrader platform:

  Min. trading volume from 1 share (1 lot)
  Margin requirement from 10%
  Commissions $0.05/share
  Min. commissions No min. commissions
  Automatic execution YES
  Hedging without margin YES
  Long/Short positions YES
  Stop/Limit orders restrictions NO
  Expert Advisors YES, without restrictions
  Real-time quotes YES, completely free

 

This publication is not prepared according to the rules for preparation of investment research. The information provided is not and should not be considered as a recommendation, advice, investment research or investment decision consultation, recommendation to follow a particular investment strategy or be taken as a guarantee for future performance. BenchMark uses public sources of information and is not responsible for the accuracy and completeness of the information, as well as for the period of its relevance after the publication of the analysis or strategy. Trading with financial instruments carries risk and can lead to both profits and losses.