Do you want to invest in Tesla or Amazon but don’t have hundreds of dollars to spare? Fractional shares are here to solve that problem. These shares allow you to buy portions of a stock. Due to this innovation, such high-value shares are more accessible to you, even if you’re investing just a few dollars. 

Do you wish to learn more? In this article, we will explore:

• How does fractional investing work?
• What are the different platforms that offer fractional shares?
• How are they changing the way we trade?
• How are they democratizing investing in high-growth stocks?

Moreover, you’ll learn about using fractional shares strategically for long-term wealth creation. Also, we will tell you how our advanced market analysis tool, Bookmap, can help you visualize the market and optimize your trading decisions. Let’s begin. 

What Are Fractional Shares? 

Fractional shares are portions of a whole stock share. They allow investors to buy a fraction of a stock rather than a complete share. This means that investors can purchase small dollar amounts of high-value stocks instead of being required to buy a full share. 

For example, 

• Let’s assume a stock is priced at $500.
• But an investor only wants to invest $50.
• Now, they can buy 10% of that stock share. 

In this manner, fractional investing has made it possible for small investors to own a fraction of very expensive stocks that are inaccessible due to high prices.

How is Investing in Fractional Shares Possible?

Historically, purchasing partial shares was uncommon in stock trading. However, advancements in technology have led to the development of special brokerage platforms. These platforms have made fractional investing a reality and have democratized investing in high-value stocks such as Amazon, Google, and Tesla. 

Many modern online brokers now offer fractional shares. This removes any barriers to entry and allows more investors to participate in the market without needing large sums of capital.

How Do Fractional Shares Work?

Fractional shares are offered by brokerages that buy full shares of stock and then divide them into pieces. These pieces, or “fractions,” are what individual investors purchase. 

Please note that brokerages manage the pooling and dividing of shares internally. Hence, investors don’t have to worry about handling fractions directly. When buying fractional shares, investors own part of a share. As a result, they also receive proportional benefits, such as dividends, based on their share fraction.

Comparing Fractional Shares with Other Markets

Fractional investing shares similarities with how other markets have evolved to enable smaller investments:

Tracking fractional investments? Bookmap’s real-time data and analysis tools can keep you in the loop on any trade at any scale.

How Fractional Shares Are Democratizing the Market?

Fractional investing allows individuals with limited capital to participate in the stock market. This allows investors to put money in blue-chip stocks and high-growth companies, which have historically been out of reach for those unable to afford full shares. For example, 

• Let’s assume there is a young investor with $10.
• With fractional investing, they can purchase a small fraction of a Tesla share.
• They do not need hundreds of dollars to buy a full share.
• This allows them to start investing, even in stocks with high price tags.

For more clarity, let’s check out some other benefits of fractional investing.

1. A) Broadening Investment Opportunities

Fractional shares are beneficial for small investors who want to diversify their portfolios. Instead of placing all their funds into a single stock, they can spread their capital across various companies by purchasing fractions of multiple stocks. 

This ability to diversify with a limited budget reduces risk exposure. Also, it supports modern investment strategies that favor a balanced portfolio.

1. B) Attracting New Demographics

Fractional investing mostly attracts younger individuals and previously underserved communities. Many younger investors, who may have been intimidated by the high costs of certain stocks, are now able to participate. This enhances their financial literacy and helps them to start building wealth early.

1. C) Supporting Dollar-Cost Averaging

Another advantage of fractional shares is that they support “dollar-cost averaging.” For the unaware, it is a strategy in which investors consistently invest a fixed amount regardless of the share price. With fractional shares, investors can regularly invest small sums. They don’t have to worry about high share prices as they can buy fractions as per their budget.

Also, this approach reduces the impact of market volatility. This happens as it averages out the cost of shares over time.

Major Platforms Offering Fractional Shares 

Several platforms make fractional share investing accessible for beginners. Be aware that each platform comes with distinct features in regard to:

• Fees,
• Account minimums,

and

• Available stocks.

Let’s have a look at the three popular trading platforms:

1. I) Fidelity

Fidelity offers fractional shares for stocks and ETFs. There is no need for a minimum account balance. They even allow investors to buy shares with as little as $1. Known for its beginner-friendly environment, Fidelity permits fractional trades down to 1/1000 of a share. 

It charges no commissions for trades, although sell orders might have minor fees related to certain assessments on larger amounts.

1. II) Robinhood

Robinhood is particularly appealing to novice investors. There is a $0 minimum account balance and a fee of only $1 for stock or ETF trades. The platform supports fractional share trades down to 1/1,000,000 of a share.  

However, account fees include a $100 transfer-out fee and instant withdrawal fees. Only Robinhood Gold members (at $5/month) receive higher interest on uninvested cash and even get access to more data tools.

III) Charles Schwab

Charles Schwab offers “Stock Slices”. It allows investors the option to buy fractional shares of any S&P 500 company for as little as $5. Schwab charges no commission for trades and investors can build a diversified portfolio by purchasing up to 30 different stock slices per order. Like Fidelity, Schwab is overseen by U.S. regulatory bodies. This ensures security and transparency.

Discover how Bookmap can empower your fractional investments with advanced market insights. 

Benefits and Drawbacks of Fractional Investing 

Benefits

• • Accessibility: 
    • Entry starts as low as $1.
    • Fractional shares remove financial barriers.
    • They allow anyone to invest.
  • Diversification 
    • Investors can easily diversify.
    • They can invest in multiple high-growth companies even with limited funds.

• Portfolio Balance and Strategy Testing

• • Fractional shares offer low-cost opportunities to test new strategies or sectors.
• Flexibility with High-Growth Stocks
  • Fractional investing lowers the risk of investing in high-value stocks like Amazon or Tesla.
  • Since you only buy a fraction, the risk of incurring losses is also minimized. 

Drawbacks

• Limited Control in Proxy Voting
  • Fractional investors lack shareholder voting rights.
  • Be aware that they are mostly reserved for full-share owners.
• Liquidity Risks
  • Some platforms restrict the immediate sale of fractional shares.
  • This significantly impacts liquidity.
• Impact of Brokerage Fees
  • Extra fees from some brokerages affect fractional investors more than full-share investors.
  • Sometimes, fees take a larger portion of small investments. 

How to Use Fractional Shares in a Strategic Investment Plan?

Fractional shares make it easy to develop consistent investment habits. They help in building wealth over time. For example, a student could invest $25 monthly into blue-chip stocks using fractional shares. These smaller and regular investments allow investors to grow wealth gradually without needing significant capital upfront.

Additionally, fractional investing reduces financial exposure. By investing smaller amounts per stock, investors can:

• Reduce their financial risk, 

and

• Gain experience.

This gradual exposure builds confidence. Ultimately, as time passes, such confident investors explore different stocks and sectors and make smart investment decisions. 

Do Informed Investing with Bookmap

Our advanced market analysis tool, Bookmap, enhances fractional investing. It provides detailed insights into market behavior. Bookmap’s heatmap allows you to track:

• Liquidity levels,
• Price shifts,

and

• Volume.

This makes it easier for investors to make their purchases. For example, suppose a fractional investor wants to buy into Tesla. Now, they can monitor Tesla’s liquidity through Bookmap and visualize areas of high buying or selling activity. Through this monitoring, they can pinpoint optimal entry points. 

How Fractional Shares Are Changing the Market Landscape

Fractional shares have allowed retail investors to influence the market. Platforms like Robinhood and Fidelity have made it easier for more people to engage in stock trading. This increases the collective power of retail investors who can now better influence market movements. 

Also, fractional investing has increased trading volumes and, consequently, volatility in certain stocks. With more frequent trades in high-demand stocks (like Tesla), the market experiences increased liquidity and, at the same time, rapid price swings.

In the past, the GameStop surge shows how fractional shares enable a large number of retail investors to influence the market significantly. In GameStop’s case: 

• • Retail investors on platforms like Reddit coordinated.
  • Their collective buying increased the stock’s price.
  • Fractional shares allowed even those with minimal funds to participate in this movement.
  • Because so many individuals were able to buy portions of the stock, it led to a massive surge in trading volume and demand. 

• This increased prices higher and amplified the effects of collective buying power on a grand scale. 

Tesla’s stock price also surged quite noticeably thanks to fractional shares, making access to high-value stock a possibility. This in turn affected market dynamics. In Tesla’s case: 

• Financial innovation allows retail investors fractional purchases of shares on broker platforms like Robinhood and Webull. 
• Fractional shares gave retailers with limited funds access to smaller portions of the high-priced Tesla stock, enabling broader participation and boosting demand.  
• This surge in buying activity among retail investors led to higher trading volumes. 
• Consequently, the stock price increased, demonstrating the influence of collective retail power through fractional shares.

Conclusion 

Fractional shares have transformed investing. They help smaller investors access the stock market and purchase high-value stocks. With fractional shares, anyone can start investing with as little as $1. This lowers financial barriers and enables gradual wealth building. They also allow for greater diversification. Through them, investors can spread their risk across different stocks with minimal capital. 

Our advanced market analysis tool, Bookmap, further enhances this experience. It helps investors make informed decisions through real-time insights and visualizations. Ready to explore the market without breaking the bank? Bookmap’s tools can help you make informed decisions on any stock, big or small.