What is the Football Index Share Split

Football Index have confirmed that there is to be a share split within the first quarter of this year, so by March 31st latest, we can expect the process to be completed. So what exactly is a share split and what does it potentially mean to traders? See below for our guide to share splits and how it might impact you.

FEB 2018 UPDATE:

Share split details to be announced on 18th March 2019.

Implementation of the share split will be on 26th March 2019.

So what exactly is a share split?

An increase in the number of issued futures which decreases the existing price proportionately. Share splits are used frequently in traditional finance, particularly when a company share price has risen substantially and they want to attract a broader group of investors (under the theory that decreasing the high per share price makes the stock more attractive to investors, including small retail investors) and increase liquidity for the company’s shares. After a split, a current stockholder holds more shares, but each share is proportionately worth less. As a result, stock splits do not change the aggregate value of what the holder owns. 

 

Example a trader holds 100 Salah shares at £12, the total value is (100 x £12) = £1200
Post proposed share split, the trader holding would double to 200 shares, but the price would halve (£12 / 2 = £6). The total value now (200 x £6) = £1200

 

Dividends post share split would also halve. So instead of each Salah share being rewarded with a 12p dividend on a treble winning day, the trader would earn 6p per share. However as the trader holds double the amount of shares post-split, the dividend return remains exactly the same.
.
So why split?

The reason some traders argue a share split is desirable is they feel new traders and those playing with smaller investments are beginning to feel priced out of the highest valued players such as Neymar at over £19 per future. If Neymar was priced at half that at £9.50 it may increase the demand for the player who is now more affordable. There is also an assumption that the spread will be less in % terms should the player value reduce, spreads are driven by liquidity and if the player is cheaper, demand will thus increase driving spread costs down.

Sounds great, what’s the downside?

The other side of the argument can largely be summed up by the expression ‘if it ain’t broke don’t fix it’. As we have shown above, post share split traders are no better or worse off. On social media you will hear traders arguing that it’s pointless holding only a small amount of futures in higher priced players so they invest elsewhere. However, as we have demonstrated, in real terms they are no better off holding 5 Salah shares then they are 10.

However the psychological impact of cheaper futures should not be discounted, human beings and therefore markets are not rational. It is likely then that a share split could see some further (if only a little) increased demand for the highest priced players driving up their price. Recreational traders and new traders, in particular, are most likely to be convinced that a split represents value. This could help increase investment and grow the index further.

The index has already successfully managed a share split previously and obviously would do so again. We are at the point where FI feels some investors no longer feel comfortable investing almost £20  for 1 share in the highest priced players, so to continue to attract the broadest base possible of new investors it makes sense for the split to occur.

Share This Post
Bishop
Written by Bishop
Worked in Asset Management for 10+ years. Professional Trader of Things since 2013: currency, sports, footballindex, tiddlywinks. IndexGain Co-founder
Have your say!
4 1
IndexGain
NEW: Introducing Spread Alerts & Notifications on Slack. Find out more here.
Holler Box