What are fractional shares, their advantages and disadvantages
Today, there are quite a few companies whose stock prices exceed $1,000, for example, one share of Pendrell Corp costs $150,000, and Mechanics Bank costs $23,000.
This significantly increases the required investment amount, especially if you want to diversify your investments and buy securities of several companies at once.
But thanks to the recently appeared opportunity, it is not at all necessary to buy the entire security; you can buy part of it.
Fractional shares are shares of a company's shares that can be purchased for any amount, even if it is less than the full value of the share.
Thanks to this, people with small capital can invest in shares of their favorite companies.
This asset has both its advantages and some disadvantages.
Benefits of Fractional Shares
They allow you to invest in expensive stocks even with small budgets. This can be useful for small investors who are just starting their journey in the stock exchange.
Buying pieces of a security allows you to diversify your portfolio. Thanks to this, you can divide your available capital between shares of different companies, which reduces the risk of your investments.
However, fractional shares also have some disadvantages.
First, fees for opening trades on such assets may be higher than usual. Brokerage firms often charge additional fees for buying and selling fractional shares.
Second, fractional shares may be less liquid than regular securities. Due to their low liquidity, they may be more difficult to buy or sell, and you may be faced with larger spreads as a result.
Where to buy fractional shares?
The first option is to use the services of brokers who split expensive securities. These companies include Charles Schwab, Fidelity Investments and Vanguard.
After registering, verifying and replenishing your account on the websites of these companies, you get the opportunity to purchase 0.1; 0.2 or 0.5 security.
The disadvantages of this option, in my opinion, are that brokerage companies are located in the USA, so not everyone will be able to open an account, there is also a high commission and there is no leverage.
The second option is to use the capabilities of our trading platform metatrader 5, in which case you can also buy fractional shares.
For example, one share of the American company NVR Inc (NVR) costs $6,244, the contract size is 1 share:
That is, with a transaction of one lot, you buy 1 share of NVR Inc for $6,244, and if you open a position of 0.1 lot, you are already buying 10% of the stock and paying only $624.4, respectively, when buying a hundredth of an NVR share For 0.01 lots you will need to pay $62.44.
Brokers for trading shares – https://time-forex.com/vsebrokery/brokery-fondowogo-rynka
And this is if you do not take into account the possibility of using leverage; its size for such an asset as securities usually ranges from 1:2 or 1:20.
It is clear that this option is not without its drawbacks; it is not always possible to find the stock of the desired company in the trading platform of the selected broker, and a swap fee .