Fractional Shares: Things You Must Know Before You Buy Them

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The stock market is rapidly changing, and the previously existing barriers to entry for the stock market are shrinking by the day. These days, there are quite a few ways for anyone to get more involved in the stock market, regardless of how much money they have. One such example is fractional shares.

What is a Fractional Share?

As the name describes, a fractional share is the fraction of a stock share. You cannot purchase them everywhere, but they are generally available for purchase at most major online platforms. 

When buying a fractional share, you pay a certain percentage of a share and pay only the equivalent parentage of the stock’s price. This is great for investors who want to purchase a stock share but may find that the stock price is too high to buy one full share. 

It also works well for people who want to invest a certain amount of money in the stock market every month – such as $100 – and are willing to purchase a fractional share to stick to that exact amount. 

Things You Must Know Before You Buy Fractional Shares

As noted in this SoFi Fractional Shares article, “Gone are the days when you needed to save hundreds to buy a single share of today’s leading companies. With fractional trades, you can buy shares in real-time for as little as $5.” 

This means that stock market investment is easier than ever before. Fractional shares can also make it easier than ever to diversify your portfolio, and they can be great for “dipping your toe” into a certain stock. 

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However, the ease with which you could invest money can quickly turn into a financial loss for you, and every dollar you lose is a dollar wasted. Do not assume that the availability of these shares means that you can skip on standard research.

Furthermore, while fractional shares can be a great tool for investments, they do come with some unique challenges. For example, if you use a platform for investment that requires a per-transaction fee, you may find much larger percentages of a share being eaten away than would if you were making a multi-share purchase. This, of course, can limit your profit. As such, you should always find a brokerage that does not charge you in this manner.

Furthermore, while many platforms now allow for the use of fractional shares, not all of them do, meaning that you have to do additional research before finding a platform that works for you. Fortunately, you can buy and sell fractional shares just like you would buy a regular share in most cases. 

Fractional shares – like any other type of investment – have a variety of positives and negatives. Make sure that you fully understand what you are getting into before you make any investment, and do your homework about the types of stocks you want to buy and how they may fit into your financial goals.