Fractional Share Definition

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.

What is a fractional share?

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.

Fractional Share Benefits

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.

Fractional Share Considerations

The most significant fractional share disadvantages include:

• Liquidity — Fractional shares don’t usually trade as frequently or rapidly as whole shares.
• Availability — Not all brokers offer fractional shares and may restrict certain order types, require a minimum dollar amount, or limit after-hours trading for fractional share orders.
• Dividends — Owners of fractional shares can receive dividends in proportion to their ownership percentage.
• Shareholder Rights — Most companies limit shareholder voting rights to owners of whole shares.
• Limited Transfers — Some brokers refuse transfers of fractional shares to another broker.

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.

Other Names for a Fractional Share

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.

Fractional Share Examples

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.

Summary: Fractional Share Definition

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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