A fractional share is a part of a whole share of a stock or other investment that allows investors to buy and own a portion of a share, enabling broader accessibility to the market.
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The business definition of a fractional share represents owning less than a whole share of stock in a corporation. Our team of business experts is here to help you with what fractional shares are used for.
You have a fractional share when you own less than one whole share of a stock, EFT, or other security. These shares can result from corporate actions like stock splits, dividend reinvestment plans (DRIPs), capital gains, or dollar-cost averaging. You might also acquire a fractional share if you invest in stocks based on a dollar amount.
Most importantly, you can’t trade fractional shares on the stock market. Only a major brokerage can sell fractional shares, and each has its own fractional share investing process. Fortunately, many of these brokers are online, including Fidelity, Charles Schwab, and Robinhood. You can also purchase fractional shares through investing applications like SoFi Invest, Cash App Investing, and Stash. Additionally, some robo-advisors like Acorns and Betterment offer fractional shares.
Many investors recognize fractional share advantages. Primarily, fractional shares allow investors to start buying with a smaller amount of money. You can diversify your portfolio by acquiring a broader selection of stocks with the money you have available. Finally, fractional shares enable dollar-cost averaging, where you regularly purchase a dollar amount of stock. Without fractional shares, you must wait to buy until you can afford a whole share.
The most significant fractional share disadvantages include:
Before purchasing a fractional share, take the time to understand your brokerage’s fractional share policies. You might find different pros and cons depending on your investing needs.
Each broker differs in the types of fractional shares they offer and the investment requirements. While shopping for the right broker, you might find fractional shares referred to as stock portions, slivers, or slices. Regardless, these terms represent that you’ll own less than a whole share.
When searching for the definition of a fractional share, it might help to have an example. Consider that a company’s stock sells for $1000. If you only have $500 to invest that month, you might ask your broker to invest in a fractional share of that company’s stock. Your $500 budget could buy half of one share of the company’s stock.
Next, consider that Company A’s stock sells for $900 and Company B’s for $50. If you have $350 to invest, you could buy one-third of a share of Company A and one-half of a share in Company B.
When you own less than a whole share of stock, you own a fractional share. You own a fraction of one share, meaning you have limited rights as a shareholder. However, buying these partial shares allows you to buy different stocks within your budget.
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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Written by Team ZenBusiness
ZenBusiness has helped people start, run, and grow over 700,000 dream companies. The editorial team at ZenBusiness has over 20 years of collective small business publishing experience and is composed of business formation experts who are dedicated to empowering and educating entrepreneurs about owning a company.
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