What Is Fractional Investing?
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Stocks can get expensive, especially in the US market. On May 11, Amazon stock was trading at $3,190 a share—not everyone can afford nearly 12,000 AED right off the bat.
What if you could buy stock slices that fit into your budget? With fractional investing, you can.
What are fractional shares?
Fractional shares are slices of a stock. Brokerages and trading apps that let you buy stock slices often offer a portion of a stock in a fractional or dollar-based increment.
For example, you might find a $5 or $100 slice of Microsoft stock, which currently trades at nearly $250 per share.
How do brokerages get access to fractional shares for investors to purchase?
Trading apps will purchase whole stocks and then offer slices of the stock to their investors. Since users are not trading directly through the marketplace, they get the perk of accessing stock slices.
If you take a look at your portfolio, you might also have some fractional shares without even realizing it.
For example, you may have 10.06 shares of SPY—an exchange-traded fund that tracks the S&P 500 index—even though you only bought 10 shares. This could be from automatically reinvested dividends, stock splits, mergers, acquisitions, or other corporate events. In this case, you're not purchasing fractional shares, but acquiring them through market activities.
How fractional investing makes it easy to invest in the U.S. marketplace
In Abu Dhabi, the state holding company ADQ has $110 billion in assets under management, most of them domestic. The UAE also receives about $10.3 billion in foreign direct investments annually. Even with all this influx of investments, residents are still interested in dabbling in the US market.
In the US, shares tend to be more expensive but produce greater returns. For investors, being able to purchase fractional shares means getting a head start on capital gains. Eventually, you'll be able to increase your investment by reinvesting what you earned.
Investors who are unfamiliar with the companies that make up the US market can also test out new investments on a smaller scale. Fractional shares can help you do just that.
How to purchase fractional shares
Find a brokerage or trading app that offers fractional investing.
Add the amount of money you'd like to invest into your brokerage account.
Find the ticker for the stock you want to buy.
Select the dollar value you'd like to invest in the stock and wait for the market order to go through (you may wind up with a smaller or larger fraction, depending on if the price of the stock changed during your order).
Are you ready to start fractional investing?
Want to take a seamless route into the US stock market? Stock slices are the way to go. Find a platform with fractional investing for an accessible, easy way to get those capital gains.
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