Fractional Share

Reviewed byDheeraj Vaidya, CFA, FRM

What is a Fractional Share?

A fractional share can be defined as the portion of stock which is less than one complete share that cannot be bought from the market directly and is a result of bonus shares, stock splits, mergers or acquisitions of companies, or dividend reinvestment plans and cannot be sold directly in the market.


The company’s capital is divided into small parts known as shares. Sometimes these shares are also split into small pieces known as fractional ones. These shares cannot be purchased directly from the market nor sold; the only way to sell these shares is through brokerage firms’ help. Selling such shares takes ample time; brokerage firms usually combine multiple fractional shares into a single unit share and then sell shares in the market. Sometimes brokerage firms purposefully split high-value shares into fractions to sell them to their clients. This is the only way for small retail investorsRetail InvestorsA retail investor is a non-professional individual investor who tends to invest a small sum in the equities, bonds, mutual funds, exchange-traded funds, and other baskets of securities. They often take the services of online or traditional brokerage firms or advisors for investment more to invest in big companies where the price of the share is too high.

Fractional Share

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How to Invest in Fractional Share?

These shares are not available for trading in the open market directly. These can only be purchased or sold through significant brokerage firms; for example, a retail investor is willing to invest in substantial companies with high share prices in the market with high value for speedy growth but with lower funds. Still, he can’t buy the full share due to insufficient funds. In this case, he can approach a brokerage firm that intentionally splits the share of such big companies into fractions and sells them at a reasonable lower price so that such small investors can invest in these companies and buy the fractional share. In this way, an investor can invest in these shares with limited funds.

How Does it Work?

Fractional shares are an essential innovation that takes place in online investing. Whenever an investor thinks of investing in shares, it is generally invested in one total equity share, but under the concept of a fractional share, a part of a slice of a share can be purchased when investing in a large company. Sometimes even a single share costs very high for an investor. In such a scenario, this share comes into practice. Suppose XYZ company’s shares are selling for $200. Under this concept, a part of XYZ’s share can be bought at, say, one-fourth of the share, valued at $50. The higher the value of the stock, the more will be the value of fractional shares. They might not be as valuable or necessary for the low value stocksValue StocksValue Stock is one that has the potential of selling at a higher price but due to the company’s adverse condition in the market, the stock is trading at a lower price than its actual worth based on its earnings, dividend, or more as investors may invest in such shares directly.

Reasons to Buy Fractional Shares



One of the significant drawbacks of fractional shares is the difficulty of trading, i.e., the only way to trade in such shares is through a major brokerage firm. If the brokerage firm does not find many investors for a single stock, which is fractionated, it might end up denying the allotment of these shares. Also, the time to fractionate the share is still higher than purchasing a single lot share. Moreover, the tax assessment of trading in these shares becomes complex.


Trading in fractional shares is possible with a small number of monetary funds. These trades are an excellent opportunity for small and new investors as they provide more returns with less risk. Also, it helps to diversify an investor’s portfolio. One of the significant drawbacks of these shares is the difficulty of trading, i.e., the only way to trade in fractional shares is through the major brokerage firms. Share splits may not always result in an even number of remaining stocks.

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