Fractional Shares – Definition & Detailed Explanation – Digital Banking Glossary

What are Fractional Shares?

Fractional shares refer to a portion of a whole share of a company’s stock. Instead of having to purchase an entire share, investors can buy a fraction of a share, allowing them to invest in high-priced stocks that they may not have been able to afford otherwise. Fractional shares have become increasingly popular with the rise of digital banking platforms and investment apps, making it easier for individuals to diversify their portfolios without needing a large amount of capital.

How do Fractional Shares work?

When an investor buys fractional shares, they are essentially purchasing a portion of a single share of a company’s stock. For example, if a share of a company’s stock is priced at $100, an investor can buy 0.5 of a share for $50. Fractional shares allow investors to invest in companies with high share prices without having to buy a whole share, making it more accessible for individuals with limited funds to diversify their investment portfolios.

Why are Fractional Shares beneficial?

Fractional shares offer several benefits to investors. Firstly, they allow individuals to invest in high-priced stocks that they may not have been able to afford otherwise. This opens up opportunities for investors to diversify their portfolios and potentially earn higher returns. Additionally, fractional shares make it easier for investors to reinvest dividends, as the dividends can be used to purchase additional fractional shares. This can help to accelerate the growth of an investor’s portfolio over time.

Who can invest in Fractional Shares?

Fractional shares are available to anyone with a brokerage account that offers the option to purchase fractional shares. This means that both experienced investors and beginners can take advantage of fractional shares to diversify their portfolios and invest in high-priced stocks. Fractional shares are particularly beneficial for young investors or those with limited funds, as they provide an opportunity to invest in companies that may have been out of reach otherwise.

What are the potential risks of investing in Fractional Shares?

While fractional shares offer many benefits, there are also some potential risks to consider. One risk is that fractional shares may not be as liquid as whole shares, meaning that it may be more difficult to sell them quickly if needed. Additionally, some brokerage platforms may charge fees for purchasing or selling fractional shares, which can eat into an investor’s returns over time. It’s important for investors to carefully consider the fees and liquidity of fractional shares before investing in them.

How can one purchase Fractional Shares through digital banking platforms?

Many digital banking platforms and investment apps now offer the option to purchase fractional shares. To buy fractional shares through a digital banking platform, investors typically need to open a brokerage account with the platform and fund it with the desired amount of capital. Once the account is set up, investors can search for the stock they want to purchase fractional shares of and enter the amount they wish to invest. The platform will then execute the trade and allocate the fractional shares to the investor’s account. This process is quick, easy, and convenient, making it accessible for investors of all levels of experience.