A share is a small piece of a company that you can buy.
But what are fractional shares in the UK and are they a good investment idea?
Let’s find out.
Fractional shares are a piece of a company’s share.
Imagine this: A company pie is divided into slices called shares. Each slice can then further be divided into smaller parts. These latter parts are called fractional shares.
But, why buy a fraction share when you buy a whole share?
Well, shares can be expensive, especially in big companies. For instance, to buy Amazon shares in the UK, you need more than £2,000.
Fractional shares, on the other hand, make investing in these mega-cap companies more accessible for broader groups of people This way more investors can participate in the trading market and can buy more snippets from different companies to diversify their portfolios.
Shares are traded on the open market and to purchase a fraction of them, you’d need a broker or share-dealing platforms where you can buy fractional shares. Some of them include Trading 212, Freetrade, and Capital.com. They also don’t charge any commission on the trades.
You can also purchase fraction shares on Revolut, Stake, and Wombat or obtain them through ETFs or Exchange Traded Funds on platforms like Wealthsimple and Nutmeg.
You can sell your fractional share on the same platform you bought it from. However, your fraction needs to merge with other fractional shares to make a whole share before it can be sold.
Depending on the demand, this might take some time. Some shares are highly sought-after and sell rather quickly. Others, usually from less popular companies, are not as desirable so, you’d have to wait.
Yes, you can buy fractional shares in the UK. Platforms like Capital.com, Freetrade, Trading 2012, Nutmeg, and Stake, and the rest, operate within the UK.
While there’s nothing stopping potential investors in the UK from purchasing fractional shares, it can be challenging to buy such shares from British companies because there aren’t many options to choose from.
The market of fractions is mostly dominated by American giants like Amazon, and Google’s parent company—Alphabet.
If you’re adamant about shopping locally, you might find fraction shares from Greggs—the Brits’ favourite pastry shop—as well as JD Sports and Ocado supermarkets on Wombat.
The good news is buying fractional shares is a simple process. If you’re a novice investor, follow these steps:
Not every share broker in the UK offers fractional shares, so the first thing you’ll need is to find one that does.
After you find a good platform, create an account and add the funding info so you can buy shares later on.
The next step is to pick a fraction share that you want to own. There are many to choose from so it’s best to do some research before you start buying.
Platforms usually calculate how big of a piece you can get with the amount you’re willing to invest.
This one is self-explanatory.
Other than share dealing brokers purposefully dividing shares into smaller parts, fractional shares can also be created in three other ways.
These plans let you, as a shareholder, reinvest your dividends and buy additional shares to help you increase your overall equity in the company. However, if your payout isn’t enough for a full share with a fixed price, you can buy fractional shares with the amount you have.
Every once in a while, companies’ boards make an executive decision to issue more shares for their shareholders. They do this by breaking their existing shares into several smaller parts. This practice, called stock split, creates fractional shares.
How and when they split the stocks is entirely up to them.
Some companies may offer a 2-for-1 option, while others may split them into 3-for-2 share pieces. Apple, for instance, did a 4-for-1 forward stock split in 2020. The move created many fractionals which made it much cheaper to buy Apple shares in the UK and worldwide.
The practice of splitting stocks is considered harmless and doesn’t affect the company’s overall value or each shareholder’s part.
The traditional stock split that results in fractional shares is referred to as a “Forward” split. However, companies can issue a request for a Reverse split, too, to bulk up their share price.
For example, if a 4-to-1 reverse split takes place, shareholders with 8 shares will effectively have 2 large shares.
Stock splits are sometimes necessary. For example, it’s recommended practice when two companies merge into one to ensure both parties own an equal part.
|Diversify your investment portfolio||Harder to sell|
|Start investing with little money||Additional fees|
|Buy into giant companies like Amazon||Limited selection|
|Invest any amount||Low dividends|
Although, there are some legitimate drawbacks, the ability to partake in the stock market by owning small equity in a high-value company outweighs the negatives in most cases.
Fractional shares have one important advantage over traditional share trading: you can buy them at a much lower cost. For example, a share of the Swedish company Lindt costs an upward of £8,000.
Those who cannot afford that can buy a fractional share at a much lower cost. They can also purchase fraction shares at several high-end companies and diversify their portfolio by holding little parts of equity from many businesses.
The biggest advantage of diversification is that it can lower your overall trading risk and reduce the volatility of your shares’ price fluctuations. This, in turn, will increase your chances of profit.
With fractional shares, diversification is more accessible—even investors with limited funds can buy fractions, of say Amazon or other shares from a UK company.
Additionally, Investing in stocks and shares can produce higher returns than cash in 90% of the cases and there’s a known principle that buying and holding on stocks might be beneficial for long term.
Note: The open trading market is ever-changing and share prices fluctuate constantly. The value of the Lindt share mentioned in the article may change accordingly.
Buying fractional shares can be a great way to enter the investment market: it’s cheaper than traditional stock, beginner-friendly, and highly customizable.
There are some drawbacks, like having to wait for your fraction share to merge as a whole to become sellable, but the process of trading with fractional shares in the UK is safe and relatively easy. There are many brokers to choose from and numerous businesses you can buy into, at a fraction of the price.
Fractional shares are pieces of a whole share that you can buy if you cannot or don’t want to invest in traditional stock.
To purchase fractional shares in the UK, you first need to find a broker/platform that offers this type of investment. You then need to make an account, decide on the exact sum you’re willing to invest, and find a fraction share you want to own.
Many share brokers in the UK like eToro, Trading 212, Freetrade, Stake, Wealthsimple, and Wombat now offer fractional shares in their investment catalogue.
If you’ve never sold a fractional share before, you can ask the broker you’ve bought them. Still, you’ll probably need to wait a while because you can’t sell a fraction share as a separate unit. It must be merged as a whole share before it can be sold.
To buy Amazon shares in the UK, you’d first have to find a broker that offers them. You can try the ticker symbol AMZN. Once you find an available share, you’ll have to decide if you want to purchase the entire share or just a fraction. The broker will guide you through the purchasing process.
There’s a relatively easy way to buy Apple’s fractional shares in the UK (or their whole ones!). Similar to other stocks, you’d first need to find a share broker offering the company’s equity. To do that, search for AAPL. Once you find it, you can buy the available share or a fraction of it.