Buying Partial Shares
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Fractional shares are a way to invest when you do not have enough money to purchase a full share of a particular stock. For example, if XYZ stock trades at $1000 per share, but you only have $100 to invest, fractional share investing would allow you to purchase a fraction of the XYZ stock ($1000/$100), or .1 shares.
Generally, you can place orders to buy or sell fractional shares in either dollar amounts or share amounts. For example, if XYZ Stock trades for $1000, you could place an order for a fractional share such as .5 shares or for a dollar amount such as $500. The way you buy and sell fractional shares differs between brokerage firms that provide this service to their customers. Below, we highlight some of the issues that may impact how fractional share investing works at your brokerage firm.
Brokerage firms may limit the types of securities you can buy and sell using fractional shares. Some brokerage firms only allow fractional share investing in stocks, while others allow it in stocks and exchange-traded funds (ETFs). Brokerage firms may also limit the types of stocks and ETFs available for fractional share investing. For example, some firms only allow fractional share investing in S&P 500 stocks. If your brokerage firm offers fractional share investing, ask them to provide you with a list of stocks or other securities you can buy or sell with fractional shares.
Brokerage firms generally offer several ways to buy or sell (order types) securities. However, some firms do not allow the use of certain order types to buy or sell fractional shares. For example, some firms only allow market orders for fractional share investing. In addition to order type limitations, some brokerage firms also have trading limitations related to fractional shares such as:
When you own fractional shares you will still receive dividends and participate in other corporate actions such as stock splits or reverse stock splits. Generally, you will participate in these corporate actions based on the percentage of a whole share that you own. For example, if you own .75 shares of XYZ stock, and XYZ distributes a dividend of $10.00 per share, you would receive $7.50. Make sure you contact your brokerage firm for specific details on how they handle dividends and other corporate actions for fractional shares.
You generally cannot transfer fractional shares to another brokerage firm. If you decide to transfer your brokerage account to a different brokerage firm you may have to sell any fractional shares in your account.
Fractional share and dollar-based trading is available through Fidelity Mobile (Basic Trade Ticket). Placing your first buy or sell order in fractional shares or dollars enables your account for fractional and dollar-based trading.
After you place your first order in fractions or dollars, any sell order will need to include the whole and fractional share amounts that you want to trade, as fractional shares will no longer automatically liquidate. You will continue to have your dividends reinvested.
Unfortunately, traditional investing comes with a lot of barriers to entry. Some stocks are really expensive, and the tentative investor may quit before trying. Fractional shares or stock slices work to lower that barrier to entry, by giving any person with any amount of available cash, the opportunity to buy a stake in a company. Public is in the business of making investing more approachable and this includes making fractional share investing readily available to anyone on the platform; no waitlists, no fees.
Fractional share investing allows you to put even the smallest amount of cash to work in the market. Considering that some popular stocks trade at $1,000 or more per share, this practice allows for the average person to invest in companies that would be out of reach otherwise. For example, you only have $100 to invest, but you want to invest in a company that is trading at $3,000 per share. Using fractional investing, you have the opportunity to buy 3% of this stock. With this technique you are able to buy a stake in the company you want without a heavy price tag. Alternatively, maybe you want to take that $100 and put it all into a company that runs about $60 per share. Traditionally, you would not be able to invest in more than one share because $100 is not enough to buy two shares. With fractional share investing you can put the full $100 into this company and walk away with 1.7 shares. This is attractive for investors who have a set amount of money that they can allocate toward investing. The technique provides more flexibility for the investor on a budget.
A lot of people are passionate about the brands they use day in and day out; the more we consume a brand the more comfortable we feel with the product and business model. When people approach the stock market, their first instinct is to invest in something they know and love, but sometimes what we know and love is just too expensive. If your favorite brands or products are highly priced on the stock market, consider buying a slice instead of a whole share. Fractional investing gives you the opportunity to invest in the things you love, for less.
Fractional shares are illiquid outside of Public and not transferable. For a complete explanation of conditions, restrictions and limitations associated with fractional shares, see our Fractional Share Disclosure to learn more.
Normally when you want to invest your money in a stock you like, you decide how much you want to invest in that stock, log onto your broker's website and see how many shares at that price you can buy with that amount. The amount you want to invest divided by the stock price determines how many shares you can buy.
How are fractional shares made To simplify it, when you put in an order for a fractional share, your broker actually goes out and buys the whole share. They then divvy up that share to investors who want a fraction and note the division in their books.
While fractional shares are a relatively new trend, the concept is not. Stock splits are a similar concept. They divide current shares into a multiple of new shares. While each individual stock is worth less, the total value of the shares remains the same. Companies generally do this to make it easier to invest in their stocks, something fractional shares tackle as well.
With fractional shares, you want first to make sure this option is enabled. (Some brokers may require that you request access to this feature.) After that, when you go to put in an order, instead of a quantity of shares, you should be able to input a dollar amount.
It's also much easier to invest based on how much cash you have rather than working out how many shares you can purchase with that amount of money. Plenty of brokers and stock trading apps are making this even easier.
Keep in mind that fractional shares have become popular in the American market but not in foreign markets. That means if you're looking to invest in foreign markets such as Europe or Japan, you may not have the option to buy fractional shares.
Before you jump in and start building a portfolio of your top stock picks, make sure you have a broker that offers fractional shares and suits your investment needs. For a small retail investor, this means a broker with low or no trading fees. To that end, we have a few recommendations:
Fidelity has quickly emerged as one of the best all-around stock brokers available today. In addition to offering fee-free mutual funds and ETF purchases, customers can also pick up fractional shares and more. They offer a basic platform for beginner investors as well as a more sophisticated one for serious traders. Plus, their 24-hour live chat and phone lines means you'll be connected with customer support easily and at any hour.
Fractional shares are worth it if you want to start investing with little money and have your eye on some expensive shares you wouldn't normally be able to buy. They're also powerful tools for diversifying your portfolio very quickly.
However, fractional shares aren't worth it if you're just using them to buy shares in large, trending companies without understanding the fundamentals of the investment. Investing in Tesla and Amazon might sound like great investments, and they very well could be. But it's important for new investors to research the stocks they're buying and to understand why those fractional shares are a good fit for their portfolios. And, as mentioned, be careful of very small stock slices since this can lead to your broker holding dividends from you.
Fractional shares allow an entirely new class of retail investors to enter the stock market for the first time. We are seeing a wave of democratization in the finance space thanks to all types of fintech companies. And this trend looks to only accelerate in the future with the advent of technologies such as artificial intelligence.
You can cash in fractional shares in the same way that you cash in whole shares, by submitting a sell order through your brokerage account. Your broker will sell your fractional shares and deposit the money to your account, minus any applicable fees.
Fractional shares are slices of a whole share of a security like a stock, mutual fund, or exchange-traded fund (ETF). They can make investing more accessible by allowing you to buy a portion of a share that might otherwise be outside your budget. For instance, if Stock A costs $400 per share, a brokerage might sell one-tenth fractional shares for $40 each ($400/10 = $40). Fractional shares are also sometimes created in dividend reinvestment plans (DRIPs), during stock splits, and as a result of mergers and acquisitions.
If you imagine a whole share is a pie, fractional shares are slices of that pie. The pie can be divided into a few slices or a great many. Fractional shares offer many of the benefits of whole shares at a lower purchase price.
Until 2019, it was virtually impossible to purchase fractional shares