What are fractional shares and where best to buy them?

4 min Read Published: 18 May 2022

What are fractional shares and where best to buy them?Many share trading apps allow you to buy and sell shares for free making it easier to trade shares than ever before. One of the issues for investors, however, is that some of the most popular shares are off-limits due to their high share price. At the time of writing, Amazon is trading at $2,216 per share, Alphabet (Google) is trading at $2,288 per share and Tesla is trading at $724 per share, meaning those that wish to regularly drip in small amounts of money each month are frozen out, unable to afford to buy even one share in these popular companies. Fractional shares, however, can be a good way for investors to gain access to higher-priced shares with smaller sums of money.

In this article, we explain what fractional shares are, how they work and which investment platforms allow you to invest in them.

What is a fractional share?

A fractional share is simply a portion of a share, meaning investors can own partial shares in a company rather than buying a full share. Fractional shares allow investors to buy shares in companies that may otherwise be too expensive. Fractional shares are not traded on the open market and so can only be purchased through an online trading platform or investing app, such as Freetrade*, Plum and Wombat.

How do fractional shares work?

As an investor, you are treated the same way whether you buy a whole share or a fractional share. This means you can enjoy the same percentage gains and shareholder perks, but likewise, you'll also be taking on investment risk.

Can you sell fractional shares?

Yes, if your chosen investing platform or app allows you to purchase fractional shares then you can trade them in the same way that you trade full shares. So, if you own a partial share in a company then you would simply need to place a sell order in the same way that you would place a sell order for a full share.

Can fractional shares pay dividends?

Yes, if your chosen share is one that pays dividends, then your dividend payment will be based on the percentage that you own. For example, if shareholders are set to receive £10 per share and you own half of a share then you would be entitled to receive a dividend of £5.

Fractional shares can help investors diversify their portfolio as they can invest in a number of different shares, each time paying just a fraction of the full share price

What is a stock split and is it the same as a fractional share?

A stock split is where a company decides to split each existing share into multiple new shares, thereby increasing the number of shares in existence. This has the effect of lowering the individual value of each share, with the aim of making it more attractive to new investors. For example, if you owned 1 share in a company and it was worth £100 and they decided to do a 10:1 stock split, you would end up with 10 shares worth £10 each following a stock split. Additionally, following the stock split, anyone wishing to invest would only need to invest £10 per share, rather than £100.

A stock split has the effect of lowering the value of each share, whereas investing in a fractional share means that you are buying a smaller part of a whole share. However, a stock split is one way that fractional shares are created. For example, if a company decided to do a 3:2 stock split an investor would get 3 shares for every 2 that they owned. If an investor only owned 1 share then they would end up with 1.5 shares. Resulting in the creation of a fractional share.

How much do fractional shares cost?

The cost of a fractional share will depend on the stock you are looking to buy. There may also be limitations based on the minimum investment set by the platform provider. Freetrade, for example, allows customers to invest from £2, as that is the smallest value that it can convert to US dollars via its currency partner. So if a full share was £10 with Freetrade, you would need to buy a minimum of 0.20 shares for £2. Trading 212 allows customers to invest in fractional shares from £1 and eToro has a minimum of $10 for those investing in fractional shares.

Where is the best place to buy fractional shares?

You can buy fractional shares from a number of popular online trading platforms including eToro, Freetrade, Plum, Revolut, Trading 212, and Wombat. Check out our table below for a summary of the top online trading platforms and whether they offer fractional shares. You might also want to check out our article 'Best trading apps for beginners'.

Platform Can you invest in fractional Shares? Minimum investment Fee to buy and sell shares
eToro tick $10 No Charge
Fidelity* cross £25 £10.00
FinecoBank* cross No Minimum $3.95 (US) £2.95 (UK)
Freetrade* tick £2 No Charge
Hargreaves Lansdown* cross £1 £11.95
Interactive Investor* cross No Minimum £7.99 (One free trade per month)
Plum* tick £1 No Charge
Plus500 cross No Minimum 0.15% charge on shares not in account holder's currency
Revolut tick $1 1, 3 or 5 free trades depending on plan. Charges apply thereafter
Trading 212 tick £1 Currency conversion charge of 0.15% may apply
Wombat tick £10 Free or £1 per month depending on the plan you choose

Pros and cons of using fractional shares

Pros

  • Invest small amounts each month, rather than having to wait and save
  • More control over how much you wish to invest as you choose the fraction that you want to buy
  • Buying small amounts of different shares can help to diversify your portfolio

Cons

  • Not all shares are available
  • The number of platforms that offer fractional shares is limited
  • Can work out expensive if the platform charges for trades

Is it worth investing in fractional shares?

Fractional shares can be a good option for those with limited funds or perhaps new investors that want a little exposure to popular stocks that would otherwise be too expensive. Investors keen to take a DIY approach may find that fractional shares are a good way to diversify their portfolio, particularly those that are keen to hold some of the higher-profile US stocks. Be mindful that some online platforms such as Plus500 offer CFD trading as an alternative way to gain exposure to expensive stocks. CFDs are complex instruments that use leverage and carry a much higher risk. Check out our article 'How do CFDs work - and how do they compare to share trading?' for more information.

 

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