How to Buy Fractional Shares – Beginners Guide

Fractional shares are now becoming a hot topic among investors of the UK, as this allows the investor to buy a fraction/ part of the whole share. Now the investors in the UK who want to start with the small capital can opt for fractional shares. They can invest in the company that are good, but are available at high price. Shares price of some companies are trading for more than thousands of dollars per share, which is quite high for many small and new investors. Hence, the concept of Fractional shares is quite efficient for investors who are not in a state to buy a whole share.

In this article, we will talk about the actual meaning of fractional shares, are they legit, what are their benefits and risks, how these fractional shares work, and many other topics relevant to the Fractional shares including the best way to buy fractional shares in UK.

There are a lot of online brokers available which allow you to invest in these Fractional shares for free, with 0% commission, which we will also discuss in this guide.

What are Fractional Shares?

Fractional share - explained

Fractional shares are a piece or a fraction of the whole share. Before going further into the topic, we must have enough knowledge about what these shares actually are– In these types of shares, an investor can invest a small amount and own a little part in the company’s share or a quarter instead of paying the amount of the whole share, meaning he will become the owner of a fraction of the single stock. Fractional shares allow you to start your investment goals without spending a lot of money on any high value share such as –

                            Amazon, Tesla, Facebook, Berkshire Hathaway, etc.

A fractional share is the best for those who are not in a state to start their investment goal because of the high initial investment in any popular share.

Why one should Invest in Fractional Shares

Before buying a fraction of any major share, you should know why these shares are a buy, what are the advantages of these shares which you are buying, do they carry any risks or not. Considering all these is a crucial thing to focus on before investing.

There are some reasons given below to understand why we should invest in these Fractional shares:

Amazon price chart - Fractional share

Invest in Expensive Shares with less –

Fractional shares allow you to invest an amount that is under your budget. Fractional shares are the best suited for those who want to buy shares but, are not able to buy because of their high price. Investors who want to invest smartly, also goes for fractional shares in-spite of having deep pockets, they still wants to start with a small amount in order to rid of high risks until they become experienced. 

If you are only interested to buy shares in the UK then this advantage would not be suitable for you as the shares listed on London Stock Exchange are traded in pennies not in pounds. This is to say that it is quite possible to start your investment with FTSE100 shares at low prices.

Invest an amount that suits your budget-

While investing in Fractional shares you are allowed to invest an amount that matches your budget, the brokers that are affiliated to the UK fractional shares allow you to buy shares with a minimum possible amount 

For example, In case the share price of a company is $1000, then you can invest a minimum amount of $10 to own 1% of a share.

Create a diversified portfolio-

It is quite impossible for an investor to create a diversified portfolio unless you have a big money. While going with a old classical way and trading with a traditional stockbroker with a small amount will leave you with a poor portfolio which in turn will affect your growth.

While trading with fractional shares you can easily invest a small amount in a bunch of companies unlike the traditional way where large sum of money is required to buy one single share. In other words with the help of Fractional shares, you would be able to invest the money as per your wish. 

For example, let’s assume that you have £500 to invest in a company. So according to that, your portfolio would be somewhat like–

So, you can easily invest in a bunch of these major shares irrespective of their share price. There is less risk of losing money if you own a large number of different stocks as if any of the stock gets drowned then you have other stocks to earn.

Advantages of Fractional Shares

The Fractional Share or a part of a full share is quite more affordable than full shares, as the investor is allowed to invest a small amount of money in the share. 

  • Fractional shares help beginners to start their career in the investment field with an affordable risk. An average investor would not be able to buy any shares in some major industries and build their portfolio as their worth is quite high. It has become very easy for newbie investors to invest in their desired stocks with Fractional shares.
  • However, dividends are being paid proportionally to your owned fraction of a share. If are investing in a part of the whole share then the dividend that you will get would also be a part of whole stock dividend. For example, if you have a quarter of a share of X company and the dividend declared for each share of X company is £20, then you will get £5 as a dividend for your holding, that is quarter part of £20.
  • If you are a beginner and don’t have enough amount to invest in shares then the fractional investment is for you, Fractional shares allow you to enter the market with ease and will start getting returns sooner.
  • Diversification is a major rule, while creating your portfolio with a small amount, diversification is a must and very important step in Fractional shares. Fractional shares allow you to buy a lot of shares at very cheap prices.

Drawbacks of buying Fractional Shares

Voting rights: 

No voting rights are offered on the Fractional shares that you own whereas you will have voting rights for every full share that you buy in the same company.

Liquidity:

Fractional shares do not trade as fast as a whole share. Sometimes Fractional shares do not provide instant asset liquidity. In order to buy the whole share, the broker needs to wait for piling up various fractional shares which may slow down the speed of sending orders. Sometimes it can take a longer time to buy or sell your Fractional shares as not all fractional shares are in demand.

Where to Buy Fractional Shares?

Now as you already know what Fractional shares are, we will now let you towards the process of investment in these shares.

Choose a Stock Broker to buy Fractional Shares

Firstly, you need to choose a stockbroker that allows you to buy Fractional shares. In the UK many celebrities are interested to get involved in investment spaces and the platforms which support Fractional ownership are still increasing. You should never pick a broker just because it offers fractional shares but you should also look for some other criteria such as fees, commissions, types of shares it offers, supported payment method, minimum investment. 

Considering all these points, let us move further towards different types of online brokers that offer fractional Shares, offer stocks, fees, and a lot of features and tools.

eToro –

It is the best overall investment Broker in the UK. eToro is the best platform for both novices as well as experienced investors. It came into notice in 2006, it serves online. More than 800 stocks including Alphabet have access to eToro. You can store a number of CFD in this, it also allows you to buy any kind of traditional shares and trading shares. In eToro minimum deposits start at $50 around 36.26 Euros. Overall eToro allows you to buy fractional shares of any company such as Amazon, Tesla, Etc, rather than whole Shares purchases meaning you can buy shares in fractions.

eToro is always the first choice of many investors. This is the direct reason for the popularity of this platform, it has more than 15 million users all over the UK. It has the license of 3 key bodies namely ASIC, CySEC, and FCA. In terms of fees, no other brokerage platform can compete with eToro. It offers 0% commission to its users, which means that you can buy shares from eToro without paying any commission charges . It allows minimum investment as low as $25 for shares. eToro also offers automated and mechanical trading services.

The most important thing in eToro is that it allows you to invest small amounts regularly. It allows different payment methods to buy any shares. The best thing about eToro is that it can be used by any investor even if he is new to the investing market, no prior knowledge is required to trade Cryptos with eToro. To save money in your account you have to make an account on eToro and all you need is your driving license and passport.

Etoro - Fractional share broker

Pros –

  • It is the largest brokerage system in terms of trading.
  • good for newbies.
  • charges 0% commission
  • holds the license of FCA, CySEC, and ASIC
  • very easy to use and many more.
  • accepts e-wallets, credit/debit cards, and bank transfers.
  • has a minimum investment of just $50
  • More than 13 million users.
  • accepts transfers via Paypal.
  • It also helps in trading CFDs.
  • has more than 800 shares in the UK.

Cons –

  • It only operates in US dollars
  • The withdrawal fee is just $5
  • Don’t have advanced technical tools.

Capital.com – 

On this broker platform you won’t be able to own the asset, only you can trade, it is specially CFD broker. It provides you the suppleness of opening an entity that you can afford. To buy and sell you will have a separate option. Not only can you invest during the hike of any shares but when the shares go down then also you can gain profit. You can also apply leverage while trading shares.

This can not be done with traditional shares. If you are a UK retail trader then the value will stand at 1:5 on stock CFDs. On the other hand, it will increase more if you consider yourself to be a professional-client. Without any commission Capital.com allows you to buy and sell assets.

Capital.com offers more than 2,000 shares and includes many of the best shares to buy. It is licensed by FCA so you don’t need to worry about safety. You can initial a minimum deposit of just 20 euros. The stock trading app of Capital.com leads you to trade with your phone.

The trading platform of Capital.com leverages Artificial Intelligence like few other competitors. Artificial Intelligence of Capital.com finds a market and probable trading setups and brings them to our attention. In Capital.com too you will get access to a charting interface with around 75 technical indicators. In Spite of being diversified, Capital.com is very easy to use, the platform is personalized, you can also use this on your phone as a handy app for trading for iOs and Android.

For trading and Investing services Capital.com is the best broker and provides a heap of resources for beginners. Capital.com does not provide any basic information about stocks like WPP, Tullow Oil, Etc. Capital.com is controlled by the Financial Conduct Authority of the UK.

Pros-

  • Charges 0% commission
  • Generate daily trade ideas
  • Trade hundreds of UK and US shares
  • Charting and analysis interface is excellent
  • Your weak points are identified by Artificial Intelligence.

Cons-

  • Custom trading strategies can’t be built.
  • No basic information about the stock.

Fineco Broker – 

Fineco brokerage firm is supported by an Italian investment bank. It was launched in 1999. Globally, You can access more than 13 stock markets and have thousands of different shares. A full-fledged online stock trading arena is also provided by Fineco Bank and is licensed by FCA and CONSOB. It provides a wide area of markets which is why Fineco is so popular. It contains a lot of portfolios as well as thousands of ETFs, CFDs, and Index Funds.

You can make 12 trades for 19.85 euros a month, it is not like eToro with 0% commission but if you are looking for a high-grade security level then Fineco Broker is for you. Apart from index funds and ETFs, it also provides bonds, shares, futures markets and CFDs, Etc.

Future products and Trade options are also available for revealing investors. It has annual fees of 0.25%, you can simply transfer your funds from your UK bank account. Investments in FinecoBank start from 100 euros. 

Fineco Bank is one of the most affordable online brokers available to buy Fractional shares online and for that, you only have to pay just 2.95 Euros per trade. Whatever amount you have decided to invest doesn’t matter, you have to pay just 2.95 Euros when you are doing a purchase and without paying any spreads you can buy Frcational shares easily.

If you want to diversify your portfolio in the market, Fineco is the best option. For entering the platform you need to pay an annual fee of 0.25% for everything up to 250,000 Euros. One more best thing in Fineco is that you can buy and sell assets without paying any fees.

Fineco Bank consists of a few tools which help you find different trading opportunities. Among them, one is a highly personalized tool PowerDesk which contains a lot of Market Newsfeed and Technical indicators. The charting interface tool is very strong and works well for both swing trading and day trading. This is a handy stockbroker and you can easily find a lot of trading opportunities as you can refine stocks by market sector, stocks of country and recent performance, Etc. 

Pros –

  • Hold a license from FCA
  • provides bonds, shares, futures market CFDs, Etc
  • It charges very little fees of just 2.95 Euros for buying or selling shares. 
  • good for newbies.
  • It needs a UK bank account to deposit funds.
  • Launched in 1999.

Cons-

  • Serves only the UK and Italy customers.
  • Debit or Credit card deposits and withdrawals not accepted.
  • Limited stocks are available for CFD trading.

Is it Worth buying Fractional Shares?

While buying Fractional Shares the first question that comes to mind is ‘Are Fractional Share legit?’ and obviously the answer for this question is yes. There is a misconception that one has to buy a full share in order to get the full benefit of the company but this isn’t true. As aforementioned Falcone said that “If a stock’s price increases 10%, you’ll earn 10% on your investment whether you own a fraction of a share or hundreds of shares.”

Investors can also expand their portfolio to a vast variety of stocks at a relatively low price than buying full shares. Only a few brokers are available that offer Fractional shares, on the other hand, only some brokers allow you to trade Fractional shares with particular companies. Fractional shares let you invest in a variety of shares to reduce the risk of your money loss. 

How do Fractional shares Work?

As we discussed so many points related to Fractional shares and why they are beneficial for a long-term investment, Now we will elucidate their working procedure with an example given below:

A fractional share of Tesla-

The current price of one Tesla share is about $800 which amounts to over 590 Pounds but if you are not in that state to invest the full 590 Pounds in Tesla shares, so you need to work out a broker that offers Fractional shares. 

So, you will just invest a minimum amount of £50 into Tesla. Divide £50 to the current share price of 590 Pounds in order to find out the value of the share you own. 

Hence, the amount of share you own in a company is 11.8 that is you own 11.8% of one Tesla share. 

It is clear from the above example that you can buy fractional shares at a minimum possible amount that you wish to invest.

How to Buy Fractional Shares

The steps given below are quite similar for all brokers irrespective of their commissions.

Create your Account 

After choosing a broker platform, to start trading your fractional shares you need to make an account, the process of opening an account is similar for all brokerage platforms. You need to provide some personal information such as – Nationality, Date of Birth, Full Name, National Insurance number, Home address, Contact details, Etc.

For buying fractional shares you would be using an FCA-regulated brokerage platform, you have to follow the process of identity verification. If you are using any platform such as Plus500 or eToro then this process would be completed in a few minutes. Only you need to provide a copy of your Driver’s license or Passport and utility bill or bank account statement.

Deposit Funds

After completing your verification process, you will be asked to deposit funds into the account of the broker that you have selected, Minimum deposits depend on the broker that you have selected. Plus500 and eToro require 100 Euros and $200 respectively.

In the case of eToro, you can make a deposit with the help of given methods-

  • e-wallets
  • Debit/Credit cards
  • Bank Transfer
  • Bank account transfer

Invest in Fractional Shares

Once you are done with fund deposits in your account, we will explain to you the process of buying fractional shares in the UK using eToro.

Firstly you need to decide which stock you wish to buy. For example, if you are buying shares in Tesla. Then enter Tesla in the search box at the top of the page, now click on the trade button. So now in the order box, the price of Tesla shares would be given but you need to deposit a minimum investment of $50 into the amount box. Finally, to complete your Tesla share purchase finish your order. 

How to Sell Fractional Shares

Selling Fractional is also very easy as buying them when you are using eToro or Plus500. To sell fractional shares through eToro. You need to go on your portfolio, click the red ‘X’ and tick “Close only part of the trade” under the trade summary. A window will open showing you your position of loss or gain at the time of closing. Click “Close Trade“.The same process is followed by Plus500 if you are selling your fractional share CFDs.

Conclusion

After doing a thorough research over the Fractional shares it is quite clear that investment with fractional shares is legit, this allows investors to buy shares with a minimum possible amount without any trouble. Fractional shares are best suited to novice investors who do not have enough money to buy high priced shares and do not want to risk their complete capital. Fractional shares even allow you to buy many costly shares such as Amazon, Tesla, Apple, etc.  

If you are ready to buy these shares right now then our recommended broker eToro allows you to buy 800 + shares without paying any commissions and you can start your investment with just $50 . 

Frequently Asked Questions

Can you short sell Fractional shares?

Yes, but for short-selling Fractional shares, you need a CFD trading platform. Basically,  you are placing an order. 

Name the brokers which offer Fractional Shares?

A very few online brokers support fractional shares such as eToro, Plus500, Etc. Fortunately, eToro allows you to invest in 800 stocks without any commission.

What is the minimum amount of fractional shares to buy?

This depends on the platform you are using. The minimum investment policy of eToro is $50 per stock.

What fractional shares are available online?

This depends on the brokerage platform that you have selected. eToro provides 800 fractional shares. On the other hand, Plus500 has 2,000 stock CFDs if you are looking to trade fractional shares.