Fractional shares: How to start fractional investing
With Stake, you are able to buy and sell fractional shares starting from just US$10. Instead of having to pay the full price of a security, you can invest a whole dollar amount and have fractional ownership of a portion of a share.
What are fractional shares?
Fractional shares enable investors to purchase and trade a portion of a company's stock, eliminating the need to buy a full share. This provides accessibility to high-priced stocks, facilitating a more diversified investment portfolio.
In the past, if you wanted to own a share of a company like Tesla ($TSLA) but didn't have the capital, you would have to leave it out of your portfolio. But now with online investing platforms like Stake offering fractional share investing, individual investors can add their favourite stocks to create a diversified portfolio, for a fraction of the whole stock's 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 plans, and mergers and acquisitions.
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-dealer 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.
You can only purchase fractional shares of U.S. stocks on Stake (not stocks listed on the ASX). When purchasing fractional shares on the Stake platform you can only use market and stop 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.
🎓 Learn more: What types of orders are available on Stake?
Fractional shares example
In this example, the company Maverick is trading for US$200 per share.
A new investor wants to own Maverick stock but only has US$100 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 $200 to $220, then your holding in Maverick would also increase by 10% to $110.
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 US$10, US$50, or even US$200 in their portfolio would have no way to directly own the world's biggest EV maker without fractional ownership. At Stake, you can purchase fractional shares directly in any of the 8,000+ Wall St stocks available.
Building off the first point, being able to buy small dollar amounts of any stock allows you to have a more diversified portfolio. A $5,000 portfolio can easily be split into 20 stocks without the need to exclude any.
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 $104.
Fractional shareholders are eligible to submit a vote on the fractional balance of their shares. How that fractional vote is valued can not be guaranteed. It varies from company to company and is not decided or influenced by Stake or our broker-dealer. Some companies may discard votes on fractionals while others give them an adjusted value.
How to buy fractional shares?
1. Open a stock investing account
To invest in fractional shares and ETFs on Wall St, you'll need to sign up to an investing platform with access to the U.S. stock exchanges like Nasdaq and NYSE. Lucky for you Stake has access to both.
2. Fund your account
Complete an application with your personal and financial details. Fund your account with a bank transfer, debit/credit card or even Apple/Google Pay.
3. Search for the U.S.-listed asset
Find the asset by searching for the name or ticker symbol. Do your own research to ensure it is the right investment product for your own circumstances.
4. Choose a market or stop order type and buy the asset
Buy a fractional amount on any trading day with a market or stop order. Look into dollar cost averaging to spread out your risk, which smooths out buying at consistent intervals.
5. Monitor your investment
Optimise your portfolio by tracking how the security performs with an eye on the long term. You may be eligible for dividends and shareholder voting rights that affect your shares.
When buying fractional shares, you set the dollar ($) amount you want to buy and can only use market and stop orders.
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.
Can you sell fractional shares?
Yes, you can sell any fractional shares you own.
When selling a fractional share, it's the number of shares you want to sell (i.e 4.3142 shares).
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 platform. 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
Yes, Stake does offer fractional share investing 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. So if you want to start your investing journey with half of a share, that is possible.
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.
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.
Yes, you can make money trading fractional shares but like any investment, you can also lose money.
If the price of a stock goes up that you own a fraction of, you could sell it for a profit. The same can be said if the price goes down and you were to sell and would suffer a loss.
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.
Megan is a markets analyst at Stake, with 7 years of experience in the world of investing and a Master’s degree in Business and Economics from The University of Sydney Business School. Megan has extensive knowledge of the UK markets, working as an analyst at ARCH Emerging Markets - a UK investment advisory platform focused on private equity. Previously she also worked as an analyst at Australian robo advisor Stockspot, where she researched ASX listed equities and helped construct the company's portfolios.