What are Fractional Shares?
With Stake, you are able to buy and sell fractional shares. Instead of having to pay the full price of a security, you can invest a whole dollar amount, starting from just US$10.
What are fractional shares?
Fractional shares give investors the opportunity to buy and sell a fraction of a company's stock instead of having to pay the full amount to own 1 whole share.
In the past, if you wanted to own a share of a company like Tesla (TSLA) but didn't have the capital, you would have to leave it out of your portfolio. But now with online brokerages like Stake offering fractional share investing, individual investors can add their favourite stocks to create a diversified portfolio, for a fraction of the whole stocks price.
Before fractional share trading, there were previously only a few ways to acquire a fraction of a share, including stock splits and reverse stock splits, dividend reinvestment plan, and mergers and acquisitions.
A fractional share is a 'fraction' of one full share of an equity.
For decades shares could only be traded in full shares on the stock market. But brokerages like Stake have made it possible to own as little as US$10 of your favourite stocks with fractional share trading.
How do fractional shares work?
When you submit an order for less than a whole share, our broker-dealer, DriveWealth, will purchase the full share and assign you the holder of the fraction. The remainder of the share remains on their balance sheet to be divided amongst other fractional share buyers.
Yes, this means that if you buy a fraction of US$400K Berkshire Hathaway Class A (BRK-A), our broker may have to buy the full share.
When purchasing a fraction of a share you are treated exactly like an investor that purchased a full share. You would both make the same percentage gains and stock ownership rights. This means you would take on the same level of risk as well.
When you purchase fractional shares on Stake you can only buy U.S. stocks. Trading fractional shares can only use market and stop orders on the Stake platform.
Learn more here: Types of Orders
Does this mean you still own the share?
It certainly does. Although our broker-dealer has to buy the remaining fraction, yours is still registered and held under your name via the traditional custodian model in the US.
How to buy fractional shares?
- Open an account: If you already have an account with us you can access fractional shares. If you don't you'll have to sign up to Stake and open a brokerage account.
- Fund your account: Complete an application with your personal and financial details. Fund your brokerage account with a bank transfer, debit card or even Apple/Google pay.
- Search for the company you want to buy a partial share in: Find the share by name or ticker symbol e.g. Tesla or TSLA. Do your own research to ensure it is the right investment product for your own circumstances.
- Choose market or stop order and the amount ($): Buy on any trading day with a market order or stop order to delay your purchase until it reaches your desired stock price. Look into dollar cost averaging to spread out your risk, which smooths out buying at consistent intervals.
- Monitor your investment: Optimise your portfolio by tracking how your stock and the business performs with an eye on the long term. You may be eligible for dividends and shareholder voting rights that affect your stock.
When buying fractional shares, you set the dollar ($) amount you want to buy and can only use market and stop orders. When selling, it's the number of shares you want to sell (i.e 4.3142 shares).
When you execute a trade for a fractional amount of more than 1 share (i.e 5.6513 shares), you will receive two confirmations: 1 for the whole share component, & 1 for the fractional part.
Fractional shares example
In this example, the company Maverick is trading for $100 per share.
A new investor wants to own Maverick stock but only has $50 to invest. With Stake, you can still buy Maverick with that amount of money and would instead be the proud owner of 0.5 shares of Maverick stock.
If the Maverick share price increases by 10% from $100 to $110, then your holding in Maverick would also increase by 10% to $55.
What are the benefits of fractional shares?
Find the main benefits of fractional investing below:
Fractional trading has made big-name shares like Tesla more accessible to retail investors, allowing bullish traders to start dollar cost averaging into their favourite stock. Trading at over US$400 per share, those with $10, $50, or even $200 in their portfolio would have no way to directly own the world's biggest retailer without fractional ownership.
Building off the first point, being able to buy small dollar amounts of any stock allows you to have a more diversified portfolio. A $5000 portfolio can easily be split into 20 stocks without the need to disclude any stocks.
You are still eligible to receive dividends on your fractional shares! They are paid on a pro-rata basis. If you own 10.4 shares of $MVK paying a $10 dividend, you will receive $104.
Fractional shareholders are eligible to submit a vote on the fractional balance of their shares. How that fractional vote is valued can not be guaranteed. It varies from company to company and is not decided or influenced by Stake or our broker. Some companies may discard votes on fractionals while others give them an adjusted value.
Things to consider when purchasing fractional shares
Only market and stop orders can be placed on fractional share balances. Limit buys or sells can not be placed.
As mentioned, not all fractional shares will carry voting rights.
Transferring fractional shares
Only whole shares are able to be transferred to another broker. If you own fractional shares in a company you will need to sell them.
Do fractional shares pay dividends?
Yes, fractional shares pay dividends.
If you own fractional shares in a company that pays dividends, you will receive dividends of that share proportionate to the percentage of the share you own.
For example, if you own 3.25 shares in a company that pays a $10 dividend, you will receive $32.50 in dividends.
Can you buy fractional shares on exchange traded funds (ETFs)?
Fractional shares FAQs
Can you buy partial shares of stocks?
Yes, Stake does offer fractional shares for listed companies on the U.S. stock market. This means you can buy and sell a partial share in different companies instead of needing the full amount of capital to purchase the whole share.
Are fractional shares worth it?
When you purchase fractional shares, you are able to buy stocks and ETFs for as little as US$10. This is a great way for new investors to diversify their portfolio by buying shares in companies that would usually be out of reach due to the large price tag on the whole share amount.
What happens to my fractional shares if there is a stock split?
If you own fractional shares in a company that undergoes a stock split, they won't be affected any differently from if they were full shares.
For example, if you own 4.5 shares of a company that rolls out a 2-1 stock split, you will then now own a total of 9 shares.
This does not constitute financial product advice nor a recommendation to invest in the securities listed. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking appropriate financial or taxation advice before investing.