What Are Fractional Shares and How Do You Acquire Them

What Are Fractional Shares and How Do You Acquire Them

Owning a stock that you’re confident will generate profit is the name of this game. Achieving consistency, however, is a bleak prospect if you can’t afford to buy the top stocks. According to SoFi Invest, there’s a way to own an expensive stock at a fraction of its cost.

What Are Fractional Shares and How Do You Acquire Them

However, the confidence traders have in Amazon Inc. (AMZN) or Alphabet Inc. (GOOGLE) is reflected in their prices. Notice that they’re valued at over $3,000 each, making such shares cheap calls for fractioning.

A Fraction of the Equity

All stocks are, technically, a fraction of value—based on the entire value of a public company. However, when a $3,000 stock is fractionated, it’s offered for prices as low as $5. Just be aware that partial stocks, when available under market value, result from three common causes. Partial shares, therefore, aren’t possible with every asset in the market. For example, companies that undergo mergers, acquisitions, or stock splits offer fractional shares. Stock splits make a stock cheaper, and the outcome might be a 5-for-2 deal.

What is the Advantage?

Buying fractional shares is legal and works with the same principles as day trading but is cheaper. As long as your balance is over $25,000, you can even roundhouse partial shares. Thus, you’ll rally with the biggest stocks in the market regardless of a limited budget. Partial shares are also regulated by the same agencies that regulate typical stocks. So you’ll essentially hedge your portfolio from the risks of expensive stocks while diversifying your market position. Of course, the partial shares you own might thrive should the other investments you have gone sour.

Who Offers These Shares?

You can find fractional shares at a regulated broker. A reputable broker enables you to buy or sell stocks by acting as a market maker for you. Such brokers give you the means to choose your prices to sell or buy equities. Regulated brokers still have to wait for companies to first offer fractional shares before offering them to you. Once such shares are available, your broker will sell them to you when you want to buy them. They’ll then buy them from you if you’re going to sell them.

How Difficult is It to Trade Partial Shares?

Expect to find the same chart patterns and trends in common stock. Yes, your risk exposure is limited, but you’ll be trading with identical margins as the otherwise-common stock achieves in a day. Though, for example, you might not gain $25 for every increase a stock makes, you might, based on your hypothetical fraction, earn at least $5 per increase. Your percentage of increase or decrease is related to the market prices the stock hits.

Fractional or partial shares must still be approached with caution and a sound investment strategy. These stocks quickly make you a big player with just a little capital to start.

See More: What is the Difference Between Equity and Commodity Trading

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