What are fractional shares?
Fractional shares are partial shares of a company. They allow you to invest in a company without buying a whole share.
If the cake is a full share, a fractional share is a slice.
Let’s say you want to invest in a company but the share price is higher than you’d like to spend.
With fractional shares this problem is solved. You can buy a half, a quarter or even less of a share.
This way even the most expensive US stocks become affordable.
As with all investments, your capital is at risk.
How do fractional shares work?
Fractional shares work in a similar way to any other share, here’s a few common questions we’re asked:
You can buy and sell fractional shares commission-free via our investment app. With overseas shares, there is a small foreign exchange fee. See our full pricing table.
Fractional shares are just a smaller portion of a share, so it will move in the same direction as the full share price.
Selling your fractional shares is the same as selling full shares. Just head to your Freetrade app and let us know how much you’d like to sell.
Fractional shares are taxed in the same way as any other US stocks, and that’s for both gains and dividends.
Fractional shares and dividends
When it comes to dividends, fractional shares are no different.
If a company pays a dividend, you’ll still receive it, but the amount will depend on how much of a share you own.
For example, if a company pays a $1 dividend and you own a quarter or 0.25 of a share, you’ll receive that amount as a dividend, so $0.25.
Once the company has paid the dividend, we’ll allocate your dividend to your Freetrade account.
Read more about how dividends are paid.
Pros and cons of fractional shares
Pros
Invest in US shares from just £2
Own a piece of even the most expensive US stocks.Take control
You decide how much you’d like to invest.Portfolio diversification
Spreading your money across more investments should help you reduce your risk.Invest as you go
Invest small amounts of money in stocks regularly. There’s no need to wait until you’ve saved up for a whole share.
Cons
What goes up can come down
Any investment you make can rise as well as fall in value.Less choice
Not every broker offers fractional shares and not all shares are available.Transfers are a little different
You can’t transfer fractional shares in specie (as they are i.e. as stock). So if you’re moving to or away from Freetrade, it will have to be in cash.Orders execute a bit differently
Fractional shares are made possible by our US broker-dealer, which means order execution is a bit different. Find more info in our T&Cs.
Build a diversified portfolio with fractional shares
A diversified portfolio is one that doesn't depend on one company or outcome to grow.
Instead of investing your money in one company, with fractional shares you can split the same amount of cash across different companies. This way, if one company or sector underperforms, your whole portfolio is not exposed and other holdings may even offset the poor performance.
Fractional shares FAQs
A key benefit of fractional shares is that they offer a way to invest in companies that may otherwise be out of reach due to their share price. However, just like any other investment, a decision to invest should take into account your personal circumstances and goals.
Fractional shares are not the same on every investment platform.
Not every investment platform offers fractional shares and the fractional shares available might be different.
Fractional shares are calculated based on the latest share price and foreign exchange rate data at the time you place your order. When you place a trade, there will be a small amount of time between the estimate that you receive, the trade being executed in the market and the currency being exchanged to USD. This accounts for any differences in the number of shares you may receive.
No. Fractional shares are generally no harder to buy or sell than whole shares with Freetrade.
However, fractional shares are made possible by our US broker-dealer and that means orders execute slightly differently than orders for whole shares. In rare circumstances, this may make them harder to sell. For more info check out our T&Cs.
Fractional shares are taxed in the same way as other US shares and any tax you pay will also depend on which investment account you hold them in.
At the moment, if you want to transfer your fractional shares away from Freetrade you will have to sell them first and transfer the amount as cash.
At the moment, you can’t invest in fractional ETFs with Freetrade, you can only invest in fractional US shares.
Have questions? Email us at hello@freetrade.io or reach out via in-app chat.
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