Glossary
Fractional shares
Portions of a single share, offered by many brokers so investors can buy by dollar amount rather than whole shares.
A fractional share is a piece of one share, such as 0.25 or 0.0731 of a stock. Many US brokers now let customers buy stocks and ETFs by dollar amount, crediting whatever fraction the money buys. That makes it possible to own expensive stocks with small sums, invest every dollar of a regular contribution and build diversified positions in a small account. Fractions can also arise from dividend reinvestment, stock splits or mergers.
How it works
Exchanges trade whole shares, so a broker typically aggregates customers' dollar orders, buys whole shares itself and allocates the fractions on its own books. Your fraction carries its proportional share of price moves and dividends.
What to check before relying on them
- Order handling. Brokers often execute fractional orders as market orders at set times or only during regular hours, and may not support limit or stop orders on fractions.
- Eligible securities. Not every stock or ETF is offered; low-priced, foreign or thinly traded issues are often excluded.
- Transfers. Fractions usually cannot move between brokers through the standard account-transfer system. They are typically sold, which can trigger a taxable gain.
- Voting rights. Some brokers pass proxy votes through for fractions; others do not.
- Costs. Most large US brokers do not charge commissions on fractional trades, but check the spread and any minimums.
Fractional shares pair naturally with dollar-cost averaging, because each contribution can be invested in full.