What are fractional shares?

Pablo René-Worms
September 9, 2021
 · 
3 Minutes
 · 
Vivid Invest

Not everyone has the financial resources to buy expensive shares from some of the world's largest companies.

Let's say you want to invest in a company, but the cost of one share is more than you are willing to spend. Instead of buying the whole share, you can also buy a fraction of it. You will then own what is called a fractional share.


How do fractional shares work?


Generally speaking, buying fractional shares gives you most of the benefits that buying a whole share or investing in an ETF does. First of all, their value is indexed to the price of the company or fund in which you have invested, and increases or decreases in value as the price changes.

A small detail about fractional shares: the ones offered by most of the neobrokers such as Vivid do not give you voting rights at shareholder meetings, nor let you benefit from dividends. It means that when you buy a fractional share with your Vivid account, you don't end up owning the underlying stock, as it is technically not possible to co-own a stock. You can learn more about how Vivid fractional shares work here.


What are the benefits?


There are many advantages to fractional shares.

One of the main ones is they make it easier for anyone to invest in any company, regardless of the price of the stock.

Let's take Amazon for example. The share price of the Seattle-based firm is 2,565.50 euros at the time of writing. That’s an amount that can be prohibitive for many small investors.

Let's say your investment budget is 100 euros. Using your Vivid account, you could decide to invest €75 in Amazon, which is about 3% of the total share price, and the remaining €25 in another company.

Fractional shares therefore make it easier to invest specific amounts in a company. You do not have to choose the amount to invest based on its divisibility by the share price. You can simply decide how much to invest and buy as many shares of the company as you want, down to the cent. With your Vivid account, the minimum amount of a fractional share is 0.01 euro.


What happens at the time of sale?


Brokerage firms generally do not have mechanisms for entering an order to sell a fractional share. Instead, investors choose to liquidate their holdings in a stock - that is, to sell all of their shares - by placing a position closing order.

This final sale disposes of all shares, including fractional shares, which yield a value proportional to the price of a full share. For example, an investor who sells 10.5 shares of a stock at 10 euros per share receives 105 euros for the sale.

It is a bit different with your Vivid account. Vivid allows you to liquidate any part of your position, meaning that you can sell any fractional share you possess whenever you want and get immediate profits from it.

What to watch out for?


Investing in fractional shares can have a few drawbacks.

The first is that brokerage fees can easily add up if the broker you are working with charges you commissions for each trade. Also, not all brokers allow their clients to buy or hold fractional shares.

This is not a problem with a Vivid account, as we don’t charge you a commission on your fractional shares. You can see our full fee list here. 

All in all, buying fractional shares is a great way to buy shares in companies that interest you, if your funds are limited or if the price of the company you want to enter is out of your reach.

Just make sure your financial situation allows you to invest before you jump in. You may be well on your way to building a portfolio of some of your favourite companies, a few euros at a time.

Any opinions, news, research, analyses, or other information contained on this website are provided as general market commentary, and do not constitute investment advice, recommendations nor should be perceived as (independent) investment research. The author or authors are employed by Vivid and may be privately invested in one or several securities mentioned in an article. Vivid Invest GmbH offers as a tied agent of CM-Equity AG the brokerage of transactions on the purchase and sale of financial instruments with the exception of those in the area of foreign exchange brokered by Vivid Money GmbH.

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