Fractional Share: Definition, Examples, How To Buy & Sell

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Unlocking the Power of Fractional Shares in Finance

When it comes to investing in the stock market, there are various strategies and tools available to help maximize returns. One such tool that has gained popularity in recent years is fractional shares. In this article, we will explore the definition of fractional shares, provide examples of how they can be used, and guide you on how to buy and sell them. So, whether you are a seasoned investor or just starting out, read on to discover the potential benefits of fractional shares in your financial journey.

What are Fractional Shares?

At its simplest, a fractional share is a fraction of a whole share. In conventional stock trading, investors typically buy and sell whole shares of a company’s stock. However, fractional shares allow investors to own and trade a fraction of a single share.

For example, instead of buying an entire share of a company’s stock that costs $1,000, you can purchase a fraction of that share, such as one-tenth. This means you can invest $100 and own 0.1 share of that company. Fractional shares are particularly beneficial when it comes to investing in high-priced stocks like Amazon, Alphabet (Google), or Tesla, as it allows investors with smaller budgets to participate in these otherwise expensive investments.

Examples of Fractional Shares

Let’s consider some examples to better understand how fractional shares work:

1. Investor A wants to invest in Company X, which is currently trading at $500 per share. However, Investor A only has $100 to invest. By purchasing fractional shares, Investor A can buy 0.2 shares of Company X.
2. Investor B is interested in diversifying their investment portfolio and wants exposure to multiple companies without spending a fortune. Through fractional shares, Investor B can purchase 0.5 shares of Company Y and 0.25 shares of Company Z.

As these examples demonstrate, fractional shares offer flexibility by allowing investors to own a fraction of multiple companies that they might not have been able to afford in whole-share investments.

How to Buy and Sell Fractional Shares

Buying and selling fractional shares is similar to trading whole shares, but there are a few considerations to keep in mind:

1. Choose a brokerage: Not all brokerages offer fractional share trading. Ensure that the brokerage you select supports trading fractional shares.
2. Select the stock: Determine which stock you want to invest in and check if fractional shares are available for that particular stock.
3. Specify the dollar amount: Instead of specifying the number of shares you want to buy/sell, you’ll need to specify the dollar amount you wish to invest. This will allow you to purchase the desired fraction of a share.
4. Review fees and conditions: Be aware of any fees or conditions associated with buying and selling fractional shares. Some brokerages may charge a commission or have specific criteria for selling fractional shares.

It’s important to note that fractional shares may not be available for all stocks or funds, so be sure to research the offerings of your chosen brokerage.

Wrapping Up

Fractional shares have revolutionized the way individuals can invest in the stock market. They provide an opportunity for investors to participate in high-priced stocks, achieve portfolio diversification, and invest smaller amounts of money. By understanding the concept of fractional shares and knowing how to buy and sell them, you can take advantage of this powerful financial tool and make strides toward achieving your investment goals.