Getting Started

Say a company needs to increase share price, often to stay listed on an exchange. To do this, they announce that 10 shares will now be consolidated into 1 share, which has the effect of increasing the price per share about 10x. (The exact ratio may differ.) So if you had 10 shares before the split, you’d now have 1 share that’s worth ten times as much. That’s a reverse split.

But what if you only had 1 share to begin with? Now you’d have 1/10 of a share, a fraction which historically could not be traded. To get around fractional shares, companies will sometimes pay you the cash value of the fractional share. Other times, though, they will round you up to one full share. When they round up, the share you had bought for $0.50 is now worth around $5. You profit $4.50 with almost no risk. This is reverse split arbitrage.

Once you understand them, trading reverse splits that round up fractional shares is easy. There are four steps:

  1. Get a broker.
  2. Sign up for notifications.
  3. Buy the stock.
  4. Sell stock (optional).

1. Get a broker

A broker is just a name for a company that lets you buy and sell stock. There are 16 that round up reverse splits, and all have apps that let you trade on your phone. I’ve listed them all here in order of the amount of free stock you get on signing up. Make sure not to use a broker on the “avoid” list, especially E-Trade and TD Ameritrade, both of which charge a $38 for each reverse split. I use all these brokers myself, so feel free to reach out if you have any questions.

For a first broker, I recommend Webull as you they offer the best sign up bonus. Deposit $100 and get two free stocks worth $10–$1850. That’s an immediate 10% return! Plus Webull allows late trading until 8pm, giving you an extra 4 hours to place orders. As you get more comfortable and want to start trading more obscure stocks that split more often, look into Firstrade or Schwab.

2. Sign up for notifications

There are two ways to get alerts. You can sign up for emails through my Substack. Sometimes you’ll have only a few hours to make the trade, so you may want to enable push notifications for emails from that address.

You can also subscribe to my Twitter account, again enabling push notifications

3. When the alerts come in, decide if you want to buy

The alert will clearly state the symbol of the stock I’m buying, how many shares I’m buying (almost always 1 share), and the deadline (generally that day). Any additional information is given in directly in the Tweet / email or on the Lastest Splits page. If you decide you want to buy the stock, then open your broker’s app and purchase one share. If you have questions, comment on Twitter, or send me an email.

4. Sell the stock (optional)

Sometime after the reverse split, one of two things will happen: either the new rounded up share will reappear back in your account ready to sell, OR the value of the fractional share will be converted to cash and deposited into your account (this is called cash-in-lieu).  Both processes can take between a day and six weeks or more depending on the broker and when they are able to get to it. The majority take about 2–3 days to process. You can sell the stock immediately and invest in something else, or hold and see how it does. 

Get started!

That’s it! Use the links to sign up for notifications of upcoming reverse splits that round up, and sign up with a brokerage and fund an account.