Investing is an excellent way to earn money passively, but some people are unable or unwilling to meet account minimums or afford whole shares. A great solution to this problem is a fractional share.
Fractional shares are exactly as their name suggests; a fraction of a share.
This type of share allows investors to purchase stock according to their chosen amount of money rather than for the price of whole shares. In turn, this allows investing to be available to many more people.
Besides just those who will not or cannot meet account minimums, fractional shares are an excellent option for investors who wish to build up a portfolio that’s very diverse but is working with limited capital.
People are often curious as to exactly how to buy a fraction of a share as well as how it works. Simply put, fractional shares are purchased via dollar-based investing, a process where the amount of money that’s being invested in a company determines the number of shares (or fraction of them) that ends up being purchased.
Many brokerages that offer the option of fractional share investing (such as Webull) also offer the benefit of commission-free trading. This means that when an investor purchases or sells a partial shares, they won’t have to pay transaction fees or commissions. Commissions usually mean that transacting partial shares isn’t worth it because the investor would be required to earn a significant rate of return in order to cover the trading costs on their partial share transactions.
Investors who purchase fractional shares are treated the same as investors who purchase full shares. This means earning the same percentage of profit, taking on the same risk of loss, and enjoying the benefits of stock ownership. The only thing that changes is the amount of all the aforementioned.
Additionally, an investor purchasing fractional shares of a dividend-paying stock would also receive payments that depend on how many shares (or how much of a share) that they own. For example, if shareholders were paid $5 for each share that they owned, then an investor who owned half a share would receive $2.50.
Selling fractional shares would follow the same process as selling whole shares. All it requires is placing a sell order with the same broker as the fractional shares were purchased from, and then cashing out holdings.
Fractional shares are a great investment option for anyone, but especially those with limited funds or beginner investors. As with all investments, they should be considered carefully and be well-researched before any financial commitments are made.
Buying fractional shares has to be done on a trading platform that offers the option. See our favorite brokers here.
Buying fractional shares is usually as simple as submitting a regular order. It really just depends on the procedure of a particular site or platform.
For example, for as little as $5, all it takes is checking for the fractional share indicator (located at the top of a stock page) to see whether or not that particular stock or ETF offers fractional shares. The minimum amount of shares per order is just 0.000001, with a minimum purchase quantity of just $5 to own a part of a stock or ETF.