Trading fractional shares is the latest investing trend and its popularity is picking up speed.
Using this method, traders can pick up a portion of a stock’s share at a cost much lower than the face value of a single share. This allows traders and those with small account sizes, to trade some of the most well-known stocks and still diversify their holdings.
Big-name stocks can be so darn expensive. Share prices for stocks like Amazon.com, Inc. (over $1,900/share) or Alphabet Inc. (over $1,200/share) may be a bit intimidating.
What if it was possible to purchase just a portion of a high-profile stock share? Would that make investing in Google, Amazon, Tesla, or Berkshire Hathaway possible?
Fractional shares could be the solution to investing in blue-chip giants while keeping portfolio diversity in play.
What Are Fractional Shares?
A fractional share is just what it sounds like. They are a fraction of a full share, broken apart by a brokerage or market action such as dividend reinvestment plans (DRIPs), stock splits, or similar corporate actions. Typically, these actions will result in an uneven number of shares that are then broken down into small pieces and sold off.
In 2019, Interactive Brokers became one of the first online brokerage firms to offer fractional shares to individuals. Since then, many other brokerage firms have followed suit and the popularity of fractional share trading has exploded.
While fractional shares may offer many benefits, the lack of full-share ownership forfeits your right to transfer shares, receive a stock certificate, or participate in shareholder voting.
Fractional Shares – A Real-World Example
Amazon is a prime example of a desired fractional shares stock. A young or new investor may only have $1,500 to invest when they first fund their brokerage account.
While they are eager to invest, believe in Amazon, and have used MarketClub tools to analyze Amazon’s trend, the trader realizes that they can’t even afford a single share at AMZN’s current price. They definitely don’t have enough in their account to properly diversify their portfolio.
With fractional shares, the trader could purchase a quarter share of Amazon for $475 – that means a vested interest in a blue-chip stock at a fraction of the traditional cost. The trader could use their remaining portfolio balance to purchase full shares of lower-priced stocks or purchase other fractional shares in non-correlating markets.
6 Brokers For Fractional Shares
Below is a shortlist of brokers offering fractional shares to their customers.
It’s important to do your own due diligence before investing with any broker. Find a broker that best fits your needs, but remember that when it comes to tools and analysis, you always have MarketClub to help with your trading decisions.
Are Fractional Shares Right For You?
At the end of the day, whether you’re a new investor or an experienced one, do your homework and educate yourself.
While fractional shares haven’t always been available to individual traders, they have always been of value. From diversifying your portfolio, to insuring your portfolio has some blue-chip holdings, fractional shares may have a place in your investment plan. Only you can make that decision.
