Fractional shares can be bought and sold from an investment broker. They are great to buy if you are a beginner investor who does not want to spend a large amount on buying the whole shares of expensive stocks. However, once you buy fractional shares, you will need to sell them eventually. So, are fractional shares hard to sell?
Fractional shares are hard to sell since you need to sell them within the same brokerage account you bought them from, and the demand for fractional shares is not always high. Fractional shares come in different increments, so finding a buyer for your specific stock and fraction may be difficult.
This article will explain fractional shares, where you can buy fractional shares, and why they are difficult to sell. If you want to buy and sell fractional shares, you will need to stay informed about the stock market and trading strategies. So, later in this article, I will also share a list of resources to help you with that aspect.
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Table of Contents
What Are Fractional Shares?
Fractional shares are partial shares of stock. They let you invest in a company, but for less than what an entire share would cost.
People often buy them because an entire share may be outside their budget, or they may want to spread their investment across multiple companies.
Fractional shares are also great for beginners who do not want to commit to a full share but still want to buy some stocks and learn the ropes.
When you buy a fractional share, you buy based on price instead of the number of shares. For example, if you want to invest $50 in a company with a share price of $250, you can buy a fractional share of the stock; you will own 0.20 of a share and still have the same benefits as owning a normal share, except voting rights.
Where Can You Buy Fractional Shares?
Unfortunately, fractional shares can be difficult to buy. Traditional platforms usually offer fractional shares.
To buy fractional shares, you need an investment broker who will purchase full shares of stock, and then they can break a full share into fractional shares for their clients. Investment brokers can divide each share however they want to, depending on demand.
Buying fractional shares from an investment broker still has its own difficulties.
For example, some investment brokers will only sell fractional shares of certain stocks, such as those in the S&P 500. Other places will only offer a select number of fractional shares based on client demand and share price.
Below is a list of some online investment brokers that sell fractional shares:
- Interactive Brokers
- Robinhood
- Fidelity
- Charles Schwab
- SoFi Active Investing
- Stash
- Acorn
- Bumped
- Stockpile
Another Way to Obtain Fractional Shares
Other than purchasing fractional shares, there is one other way to get them. After a stock split, you may end up with fractional shares. This is because a common type of stock split is a 3- for-2 split where investors receive three shares of stock for every two that they own.
Say you own one share of stock. You don’t have two shares like the split specifies, so you will still get one and a half shares from the split. Even though you did not purchase a fractional share.
This is the case with any investors who own an odd number of shares prior to a 3-for-2 split. But companies can use any ratio during a stock split, so there are other opportunities for fractional shares to occur as well.
If you end up with fractional shares from a stock split and you need to sell them, you can do so at a variety of brokerages. Unlike when you purchase fractional shares, you are not limited to one brokerage.
Many brokerages will buy fractional shares then sell them as is, or buy other fractional shares of the same company until they have a whole share to sell. Usually, companies do the latter since fractional shares are harder to sell.
Why Are Fractional Shares Hard To Sell?
First, the demand for stocks is the biggest reason that fractional shares may be hard to sell. If you hold a fractional share, you need someone to want to buy the stock and the exact fraction of the share that you own.
Additionally, since fractional shares are only bought and sold within a single investment brokerage, you can sell to a limited number of buyers.
If demand for your stock is high, you’ll have less trouble selling your fractional share. Still, this is rare since your market is small, and not everyone within your brokerage will trade fractional shares.
Additionally, you will have to stay with your current broker to keep your fractional shares. That’s because investment brokers buy full shares and split them into fractions. So, you will need to keep your fractional shares together with your broker.
To change to a different broker, you need to sell your fractional shares, transfer the money to the cash account, and then move those funds to your new broker. Since fractional shares can be difficult to sell, it is an important consideration to keep in mind, if you plan on changing your investment broker at a later stage.
Selling Fractional Shares as an Investment Broker
Investment brokers may have a hard time selling fractional shares too. Since brokers buy whole shares, they need to split them according to demand. For example, if an investor is looking for 0.10 shares of a company, the broker will not split a share into two 0.50 shares; otherwise, they will go unsold.
Furthermore, an investment broker may only sell some of the fractional shares, so they lose money and may not want to sell fractional shares going forward. For example, if a broker has one share of company XYZ split into ten 0.10 fractions but can only sell six of them. They will not make money on the remaining four fractional shares, thus losing money from fees.
Resources for Beginner Investors
Having enough knowledge about the stock market before you start trading is important. These books will help you get started, and once you master the basic concepts and strategies, you can start trading fractional shares.
- Stock Investing for Dummies is a simple to read and understand book that will help you understand the fundamentals of trading stocks. If you know nothing about the stock market, this book is a great resource since it teaches you how to understand the information in the stock market.
- A Beginner’s Guide to the Stock Market: Everything You Need to Start Making Money Today lays out a roadmap for you to follow as you begin to invest in stocks. Once you understand the fundamentals of the stock market, you can use this book to guide you through opening a brokerage account, buying your first stock, and how to pick stocks that are best for you.
- How to Make Money in Stocks: A Winning System, in Good Times and Bad, will teach you how to pick the right stocks and the most profitable ones. You will learn how to avoid the most common investor mistakes and a seven-step process to minimize risk and maximize gains.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
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- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
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Conclusion
Fractional shares are difficult to sell since the demand for them is usually low. Additionally, you need to sell your fractional shares within your investment brokerage, so the buyers’ market is not large, to begin with. You also need to find a seller who wants the share increment that you are selling.
Fractional shares have some benefits, but if you think you may want to sell them soon after buying them or do not want to stick to a single investment brokerage, you may want to reconsider adding fractional shares to your portfolio.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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