Fractional shares have revolutionized investing by allowing anyone to buy a piece of any stock, regardless of price. You no longer need hundreds or thousands of dollars to invest in high-priced stocks like Amazon or Berkshire Hathaway.
What Are Fractional Shares?
A fractional share is a portion of a full share of stock. Instead of buying 1 complete share, you can buy 0.1, 0.5, or any fraction of a share.
Fractional Share Example
Stock price: $500 per share
Your investment: $100
Shares purchased: 0.2 shares (100/500)
If the stock rises 10% to $550:
Your 0.2 shares are now worth $110 (also a 10% gain)
Benefits of Fractional Shares
Start Investing With Any Amount
No minimum investment needed:
- Invest with as little as $1 at many brokers
- Build positions gradually over time
- No need to save up for expensive stocks
Better Diversification
Spread your money across more stocks:
- Own pieces of 10+ stocks with a small account
- Allocate precisely to each position
- Build a diversified portfolio from day one
Example: With $500 and fractional shares, you could own portions of 10 different stocks at $50 each. Without fractional shares, you might only afford 2-3 stocks.
Dollar-Based Investing
Invest specific dollar amounts rather than share counts:
- Invest exactly $100 per month in a stock
- Easier budgeting and automatic investing
- Natural dollar-cost averaging
Full Dividend Participation
Fractional shareholders receive proportional dividends:
- If a stock pays $1 dividend per share
- Your 0.5 shares receive $0.50
- Dividends can be reinvested in more fractional shares
How Fractional Shares Work
Behind the Scenes
Brokers typically handle fractional shares in one of these ways:
- Pooled trading: Broker buys whole shares and divides among customers
- Market maker: Broker acts as counterparty to your fractional trade
- Aggregation: Combines fractional orders until they equal whole shares
Order Types
Fractional share trading often has limitations:
- Most brokers only offer market orders for fractional shares
- Limit orders may not be available
- Extended hours trading may not be supported
Limitations of Fractional Shares
Not Available Everywhere
Fractional share availability varies:
- Only certain brokers offer fractional trading
- Not all stocks are eligible (typically only liquid stocks)
- ETFs may or may not be included
Transfer Complications
Moving fractional shares between brokers can be tricky:
- Most brokers cannot accept fractional shares in transfers
- You may need to sell fractional positions before transferring
- This can trigger taxable events
Voting Rights
Fractional shareholders may have limited rights:
- Some brokers do not pass through voting rights for fractional shares
- You might not be able to vote at shareholder meetings
- Check your broker's policy
Important: You still own a real financial interest in the company. The limitations are primarily operational, not ownership-based.
Best Brokers for Fractional Shares
What to Look For
- Minimum investment: Lower is better (some start at $1)
- Eligible securities: More stocks and ETFs available is better
- Commission free: Most modern brokers offer free fractional trading
- Dividend reinvestment: Automatic DRIP for fractional shares
Popular Options
Several major brokers offer fractional shares:
- Check if your current broker supports fractional trading
- Compare minimum investment amounts
- Review which stocks are eligible
- Consider the overall platform and features
Strategies Using Fractional Shares
Dollar-Cost Averaging
Invest fixed amounts on a regular schedule:
- Set up automatic deposits (weekly, bi-weekly, monthly)
- Automatically invest in your chosen stocks
- You will buy more shares when prices are low, fewer when high
- Removes emotion and timing from investing
Building a Diversified Portfolio
Create a balanced portfolio from scratch:
- Allocate percentages to different sectors
- Invest exact dollar amounts to maintain allocations
- Rebalance by adjusting dollar amounts
Portfolio Allocation Example
Monthly investment: $500
Technology (30%): $150
Healthcare (20%): $100
Financials (20%): $100
Consumer (15%): $75
Energy (15%): $75
Reinvesting Dividends
Maximize compound growth:
- Enable automatic dividend reinvestment
- Even small dividends buy fractional shares
- Accelerates compounding over time
Track Your Fractional Share Portfolio
Managing multiple fractional positions across stocks requires good tracking. Pro Trader Dashboard helps you monitor your entire portfolio performance.
Tax Considerations
Cost Basis Tracking
Fractional shares can complicate taxes:
- Multiple small purchases create many tax lots
- Use your broker's cost basis reports
- Keep records of all purchases
Selling Fractional Shares
When you sell:
- You can often choose which lots to sell (FIFO, specific ID)
- Same tax rules apply as whole shares
- Short-term vs long-term capital gains based on holding period
Summary
Fractional shares have democratized investing by removing price barriers. Anyone can now build a diversified portfolio of quality stocks with any amount of money. While there are some limitations around transfers and certain order types, the benefits of accessibility and precise allocation make fractional shares an excellent tool for investors of all sizes.
Learn more about building your portfolio with our guide on dollar-cost averaging or explore portfolio diversification strategies.