Fractional share ownership has received some media attention and people may be curious about what it is.
A fractional share allows you to purchase a piece, or a fraction, of a share. What you’ll pay is proportional to the size of the share you buy.
With fractional share ownership you could own a piece of a high-profile company that has expensive stock prices. That means you could diversify your portfolio while keeping your investment budget on track.
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Fractional share ownership pricing
Let’s say there’s a big company you are really excited about. The company’s stock is trading at $1,000 per share. That’s more than you are willing to invest, but you could invest $250 which would buy you one quarter of a share.
Some online brokerage platforms allow you to enter the amount of money you wish to invest in a fractional share. Then the platform tells you what size of a share your investment buys.
Technological advances make it possible for you to purchase a very small fraction of a share.
Buying and selling fractional shares
When you trade a fractional share, it is different than a traditional stock trade, in the price as well as how it is traded.
For regular stocks, you buy or sell a share or shares at a price that reflects market conditions at the time of your trade. And you can buy or sell anytime while the markets are open.
Fractional shares can work in different ways. One example in Canada involves the broker determining when a fractional buy or sell order is sent to market. A broker bundles, or aggregates, orders to buy and sell fractional shares throughout the day. Then the broker executes these bundled orders at one time during the day. The execution price depends on the time when the broker trades the stock.
Keep tabs on stocks by learning how to monitor stock performance.
What fractional share ownership could provide
Fractional ownership could provide you with the chance to be part of a fast-growing company or sector while allowing you limit how much you invest in any one company or stock.
You may earn dividends that are paid in proportion to the size of the fractional share you own.
But fractional share ownership does not give you the full benefits of regular stock ownership. For example, you may not have voting rights. In many arrangements, only whole share owners have voting rights.
Your fractional share ownership arrangement is with your broker, and you can’t move your fractional stock whenever you want to another broker.
One example of full share compared to fractional ownership
|Regular full share ownership|
Fractional share ownership
|You pay the money to buy a share or shares.||You enter the dollar amount on a digital platform of how much you are willing to spend and that determines the size, or fraction, of the share you own.|
|You can buy or sell while the markets are open.||Your broker takes your request to buy or sell your fractional share and determines when the order is sent to market.|
|Your cost to buy or sell your shares, is based on the market price at the time you are conducting the transaction.||The execution price, to buy or sell, depends on the time when the broker trades the stock.|
This may happen once a day.
|You have voting rights.||You may not have voting rights.|
|You may receive dividends based on the number of shares you own.||You may be paid dividends in proportion to the size of the fractional share you own. There may be other implications relating to other corporate actions (e.g., stock splits).|
|You can switch brokers.||You cannot move your fractional share to another broker. If you move your account to another dealer, you will have to sell any holdings of fractional shares.|
What to consider before you buy a fractional share
If you’re interested in a buying a fractional share, you may want to review your finances and determine how much money you can afford to invest.
Remember, there is no guarantee of growing your investment, even with fractional ownership of a share in a big company’s stock. Just because a stock has performed well, it does not mean it will continue to do the same in the future.
You will also want to look at any costs associated with opening an account and whether there is a cost for making trades.