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Fractional Shares: How to Buy Part of a Stock with Fractional Trading

Fractional Shares: How to Buy Part of a Stock with Fractional Trading

In recent years, many of the market’s hottest stocks have also been the most expensive ones to purchase. As a result, the only options for smaller investors have been exchange-traded funds (ETFs) and index mutual funds. And while that’s not a bad thing, sometime’s you just want to own a company’s actual stock.

Fractional trading is still very new in Canada, but it’s making stock investing accessible to investors of all levels. But how does fractional investing work, and where can you buy fractional shares in Canada?

What Is Fractional Trading?

Normally, when you place an order to buy stock, you are required to purchase a specific number of units (1 or more shares.)

Fractional trading enables you to buy a portion of a single company share. For example, if a Company ABC trades at $300, but you only have $150 to invest, fractional trading will allow you to purchase one half of a share for $150. Or, you could buy 1% of a share for $1.50.

When you place a fractional share order, you are basing your purchase on a dollar amount instead of the number of units.

Reasons for Buying Fractional Shares

Here are a couple of reasons investors relish the opportunity to purchase fractional shares.

It Allows You to Invest All of Your Money

If you’re forced to buy full units of stock, you will usually end up with a small amount of cash left over after every purchase. Let’s say you have $525 in your cash account and wish to purchase ten shares at $50 each ($500). After making the purchase, you’ll be left with $25 in cash. It’s not a big deal, but it can be annoying if it happens every time you want to place a trade.

Fractional investing would allow you to purchase $525 worth of stock or 10.5 shares. Over the long run, it’s a more efficient way to invest.

Gives You an Opportunity to Buy Expensive Stock

In recent years, the share prices of some of the world’s hottest companies were so expensive that it wasn’t affordable for many investors to buy in. For example, single shares of Google, Shopify, and Amazon were all trading above $1000 per share until their respective stock splits.

Prices like that make it difficult to build a diversified stock portfolio unless you have six figures to invest. Of course, you can purchase shares in these companies inside a mutual fund or ETF, but fractional trading allows you to buy the actual stock while building a diversified portfolio. You no longer have to wait around hoping for a stock split.

How to Buy Fractional Shares in Canada

Fractional trading is more common in the U.S., with several online brokerages supporting fractional share trading, including Robinhood, Fidelity, and Charles Schwab.

Currently, the only option in Canada is Wealthsimple Trade, the stock trading platform offered by Canada’s largest robo-advisor, Wealthsimple.

Even Wealthsimple doesn’t enable fractional trading for all stocks, but they do support a list of popular stocks with high share prices.

How to Buy Fractional Shares on Wealthsimple Trade

According to Wealthsimple, you can purchase fractional shares in as many as 500 stocks and ETFs in the Canadian and US markets. Here is the full list of the available stocks:

  • Shopify (SHOP)
  • Royal Bank of Canada (RY)
  • Toronto Dominion Bank (TD)
  • Canadian National Railway Co. (CNR)
  • Amazon (AMZN)
  • Google (GOOGL)
  • Apple (APPL)
  • Microsoft (MSFT)
  • Meta Platforms (META)
  • Netflix (NFLX)
  • Tesla (TSLA)
  • AirBnB (ABNB)
  • Coinbase (COIN)
  • Nvidia (NVDA)

If you’ve opened a Wealthsimple Trade brokerage account, all you need to do is search for “Fractional Shares” via the mobile app, select the stock you want to purchase, and your purchase amount. Unlike regular trading, Wealthsimple says that they settle fractional shares two times per day, so you may not see your trade settled immediately. To sell the shares, you would follow the same process.

If you want the ability to purchase fractional shares, you can open a Wealthsimple Trade account using our exclusive link. It only takes a few minutes to get signed up.

Disadvantages of Fractional Shares

There are a few potential drawbacks of fractional share investing. For starters, most brokers only allow you to purchase fractional shares in a limited number of companies. For example, Wealthsimple Trade only makes 14 stocks available for fractional investing (they do offer hundreds of ETFs.)

Another drawback is that very few brokers offer fractional trading, with Wealthsimple Trade being the only one in Canada currently. Lastly, if your broker charges trading fees to purchase stocks and ETFs, buying small amounts of stock will become very expensive.

Thankfully, Wealthsimple offers no-fee stock and ETF trades, so it’s less of an issue.

FAQs

Do fractional shares pay dividends?

Dividend investors may wonder how dividends are treated for fractional shares. After all, a dividend is paid out on a per-share basis. It’s pretty straightforward – if you own a fractional share representing 50% of the full share price, you’ll still receive a dividend for that share, but only 50% of the full dividend.

Is it hard to sell fractional shares?

You won’t have a problem selling your fractional shares as long as the stock you are selling is in high demand. All of the companies on Wealthsimple’s fractional share list are major Canadian or U.S. companies with high trading volumes.

Does RBC allow fractional shares?

RBC may be Canada’s largest bank, but its stock trading division, RBC Direct Investing, doesn’t allow you to trade fractional shares.

Are fractional shares more expensive?

Purchasing fractional shares could get expensive if you purchase them in small amounts and incur trading fees. But it’s a non-issue for Wealthsimple customers as there are no fees.

Click here to Get Started with Wealthsimple Trade

Final Thoughts on Fractional Shares

It’s nice to know that Canadian investors have a place where they can buy and sell fractional shares. If it’s an option that interests you, then Wealthsimple Trade is worth considering. If it’s not as important, consider other online brokerage options, like Questrade.

Comments

  1. Gavin Sheppard

    How does this compare with what CIBC has to offer re. factional shares?

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