What are fractional shares? The definition of fractional shares is true to its name where you can buy a fraction, or a part/portion of a share, as opposed to purchasing the entire full share.
For example, say Company X is trading at $10,000. Typically, the way it works is that if you need to buy 1 share of X, you’ll have to pay the entire $10k. However, if fractional shares are permitted on your stock trading platform (and depending on what the minimum requirement is), you can literally buy company X for $1’s worth. Your equity will just be equivalent to how much money you put down.
When I say equity, it simply translates to how much you own. It’s similar to the equity you have in your house. So continuing with our example, if you buy 1 share of company X for its full price of $10k, you’ll own 100% of the equity of that 1 full share. Howbeit, if you put in only $1, you’ll own 0.01% of the equity of the same 1 full share.
The availability of this fantastic stock/share trading concept is semi-new to the regular world. It is said that amongst many, Interactive Brokers was the first online broker to offer fractional shares to its users in 2019.
In my opinion, yes! Fractional shares allow you to invest in companies that you truly believe in, but may be out of your financial reach — in the sense of buying an entire share. Further, it will enable you to diversify your portfolio by investing in organizations that have a history of stability, resilience, and an excellent track record of giving back to its investors. No joke, you can buy $1 worth of 1 share of 100 companies, if all you have is $100 to invest, to get started.
Yes, they do (as long as the company pays dividends in general). Similar to what was mentioned about equity, the same applies to dividends. Your dividend value will be in proportion to your ownership of that stock.
Yes. Your ability to buy fractional shares will be contingent on what your trading platform is. If your brokerage account/company/platform allows fractional shares, then you shouldn’t be restricted to buying the same of only a few companies. Whatever is publicly traded, you can buy a fractional share of it. The only opposing factor is if fractional share trading is not authorized. Notwithstanding what’s described here, there may be situations where certain companies might not be allowed. If that’s the case, your trading platform should tell you why.
You May Also Want to Check Out:
How Can You Buy Fractional Shares?
There are a good number of trading platforms offering the flexibility of fractional shares now. Although, if you’re also using Robinhood, as I do, follow along to learn how to buy fractional shares by dollar amount. (I am assuming you already have a running account with Robinhood).
Either search for the company you want to buy a fractional share of, or navigate to it from your wishlist. Either way, you’ll have to go to that company’s profile page — so to speak, in Robinhood.
Then, make sure you’re buying the stock in “dollars” as opposed to “shares.” The option to get to this page will vary slightly between you using Robinhood on a desktop versus an app. In the app (Android), it’s classified under “order types.” On Desktops, you simply have to switch the option to invest in dollars. (See the screenshot below for reference).
In Robinhood, I believe the minimum requirement to qualify for a fractional share is $1 (one dollar). In other words, the least possible amount of money you have to put down is $1 — if purchasing by dollar value.
Alternatively, if you’d rather buy in “shares,” that option is also available. For instance, you might want to purchase 1.5 shares of a company. According to Robinhood, at the minimum, you can buy a 0.000001 share of any publicly traded establishment.
Fractional shares have opened the doors for more investors to buy their stake in renowned companies or companies they believe in. I think of it as a win-win situation where all parties involved are benefiting from it.
The investors can now get equity in the company of their choosing — while having more opportunities for diversification, and the companies themselves, in return, now have access to a much larger pool of audience/investors to get the money from — to grow, expand, or get in new lines of businesses.