What Is Fractional Trading?

Buying stocks can be expensive. One share of Apple, for example, is over $200 as of this writing. A share of Microsoft is over $400.

But what if you didn't have to buy a full share? That's where fractional trading comes in — instead of saving up to buy a single share of an expensive stock or fund, you can purchase a piece of it without paying full price.

Fractional trading makes investing more approachable and affordable.

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What Are Fractional Shares?

Fractional shares are a portion of a stock or other investment. Instead of buying a whole share, you can purchase a chunk of the investment for less than the share price. 

For example, maybe a stock costs $1,000 per share, but you can buy a fractional share for $50. That $50 would be the equivalent of owning 5% of a single share.

Fractional shares were designed to let investors own high-priced stocks with very little upfront investment. This allows you to own a stock sooner and benefit from the growth without needing to wait until you have more money to invest.

Fractional shares also allow you to buy more stocks or funds with less money — so you can build a diversified portfolio without thousands of dollars.

For example, if you had $1,000 to invest, but the stock you wanted to buy was $1,000, you would be risking 100% of your money to buy one share of that stock. 

With fractional share investing, you can invest just $10 (or $50, or $100) and split your funds across dozens of stocks instead.

And fractional shares let you invest more often since you can invest a little money now instead of waiting until you have a pile of cash later. This lets you benefit from dollar-cost averaging into the market sooner.

READ MORE: How to Start Investing When You Don’t Have Much Money

Pros and Cons of Fractional Trading

Fractional shares are a pretty great way to get into the market and start earning, even if you don’t have a lot of money to invest at once. But there are a few negatives to consider.

Pro: Buy expensive stocks and funds

There are some stocks that cost $1,000 or more, and fractional shares let you invest in those stocks for less than $100. 

This gives you access to investments that would otherwise be out of reach.

Pro: Invest sooner

Since fractional trading lets you invest with just a few dollars, you can start sooner. You don’t need a pile of cash to become an investor, and your money has longer to grow. 

Pro: Diversification

When you only need a few bucks to invest in a stock or fund, you can usually buy more than one. 

This means you can instantly diversify by investing in multiple stocks or exchange-traded funds (ETFs) without breaking the bank.

Con: May not be able to transfer to another broker

Some brokers may not accept fractional shares if you are looking to move to a new broker. 

This means you might need to sell your fractional shares before moving brokers, which may have tax implications.

Con: Not all investments offer fractional shares

You may not be able to buy fractional shares of bonds, mutual funds, or other investments. This limits your overall investment selection.

Con: It may encourage active trading

Investing is a long-term commitment, and fractional shares make it easier to buy and sell stocks and funds. This may encourage active trading, which is a riskier approach to investing.

READ MORE: Active vs. Passive Investing: Which Is Best?

How To Buy Fractional Shares

To buy fractional shares, you first need to sign up with a broker that offers fractional share investing. 

Several online brokers offer fractional shares with low minimum investment requirements — as little as $1 with some brokers. 

Once you set up your account, you can then buy your fractional shares just like you would with a full share. Simply input the dollar amount you want to spend, and the broker will calculate how many fractional shares you can get.

Which trading platforms allow fractional shares?

Here are a few brokers that offer fractional share trading:

• Fidelity: One of the largest brokers in the world. Wide range of investments and low fees. Buy U.S. stocks and ETFs for as little as $1.
• M1 Finance: Investing app that helps you automate your investments. Offers fractional share investing of stocks and ETFs for as little as $1.
• Public: Commission-free investing platform. $5 minimum investment for fractional shares.
• Robinhood: Online brokerage. Offers fractional shares of stocks and ETFs for as little as $1.
• Schwab: Large discount broker. Offers fractional share investing in any stock that’s part of the S&P 500 (although this limits your stock choices). Invest as little as $5.
• Webull: Low-cost broker. Fractional share investing starts at $5. Stocks, ETFs, and other investments.

FAQs

Is it hard to sell fractional shares?

Selling fractional shares of an investment is just as easy as buying fractional shares. 

You simply log into your online broker, select how much of your stock or fund you want to sell, and place the sell order. 

You should be able to sell fractional shares for the order minimum set forth by your broker.

Can fractional shares make money?

Fractional shares make money in the same way as investing in a stock or fund makes money. 

You own a portion of the stock, ETF, or other investment when you buy with fractional shares — and benefit from the growth, dividends, and earnings just like any other investor. 

Fractional share investing also lets you invest sooner because you don’t need to buy whole shares of an investment.

TL;DR: Is Fractional Trading Worth It? 

Fractional trading is worth it for investors who don’t have enough to buy a single high-priced share of a stock or ETF. It makes investing more accessible and lets you buy more than one investment for less than the price of a single share. 

And since most brokers that offer fractional share investing don’t charge commissions on stocks and ETFs, it can be a great low-cost way to start investing.

For more investing advice, check out these episodes of the Erika Taught Me podcast:

• Investing in the Stock Market Explained: A Guide For Beginners
• How To Invest for Beginners (Step by Step)
• Money & Investing Pitfalls To Avoid

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