With more and more retail investors interested in the stock market, many brokers are starting to allow for fractional shares trading. As an investor (or a soon-to-be one) using Fidelity, it is important to find out if you can purchase fractional shares with them. So does Fidelity offer fractional shares?
Yes, Fidelity allows its customers to buy fractional shares on more than 7,000 stocks and ETFs. More so, they only require a minimum dollar amount of $1 without a dollar maximum for each order. However, this feature, Stocks by the Slice, is only available when using the Fidelity mobile app.
In this article we are going to consider:
- How Fidelity can make fractional shares trading possible,
- If there are any risks with fractional shares trading, and
- If there are any benefits with fractional shares trading
With Fidelity, fractional shares can be bought by specifying the share quantity up to three decimal places (0.001) like 1.442 shares, or by specifying a dollar amount.
With the dollar amounts, if a company’s share price is $130 for example, and you intend to buy shares of that company that are worth $500, you end up purchasing 3.846 shares assuming that there are no transaction fees. When executing fractional shares trading, Fidelity rounds down to the nearest .001 share.
With Fidelity, even fractional shares trading are still affected by a listed company’s actions. For instance, dividends for a fractional share are still received by fractional shareholders in proportion to their ownership in a whole share. However, Fidelity only supports dividend payments up to 0.01 shares, so if you have any quantity less than that, you won’t receive any dividends. Stock splits and reverse stock splits also affect fractional shares on Fidelity.
You can trade all stocks listed on the National Market System (which includes the NYSE and NASDAQ) exchange with Fidelity, as long as they are made available for fractional trading. Fidelity could also modify the list of stocks available for Fractional shares trading without notifying you first.
However, any modification will not affect the fractional shares you have purchased. Furthermore, certain circumstances will still permit you to sell fractional shares of a stock that is no longer on the NMS, provided it was listed there when you initially bought it.
As with whole shares, when the trading of any security is halted, its fractional shares trading will also be halted, and any pending order will be on hold until trading for that security resumes. And while you can try to cancel an order, you cannot modify it once it has been submitted.
Any order placed is only good for that day’s trading session, and if it was placed outside trading hours, it is only good until the close of the next trading session. Where trading does not resume, or for any reason, your order is not executed by the end of the day’s fractional trading window, your order will be canceled.
For a Fidelity Fractional share trade execution, Fidelity Brokerage Services (FBS) acts as an agent for you, while the National Financial Services LLC (NFS) acts as either a principal or as your agent and principal.
All fractional share orders will be executed based on the price NFS receives in the market, and while a fraction of the share is allocated to you, NFS can either hold other fractions of the whole share or allocate them to other customers purchasing fractional shares.
Fractional Shares trading generally doesn’t come with any special “risks”. Of course, there is always the risk that your investment could lose significant value, as with every other investment.
However, with fractional shares trading on Fidelity, you will experience some differences which are best-termed disadvantages. These include:
- Not being able to transfer fractional share positions outside Fidelity
- Not being able to participate in proxy voting or most voluntary corporate actions.
- You can only trade fractional shares with Fidelity Mobile
- Due to rounding down, the amount of a buy or sell order might end up higher or lower than what you expect.
The main benefit of fractional shares trading is the opportunity to invest with way lower dollar minimums than per-share trading offers.
For instance, Amazon ($AMZN) shares cost around $3200, and before this feature came about you would need to have at least that amount to buy into Amazon. But you can now own a part of Amazon for just $1.
As I already told you, Fidelity does offer fractional shares and with a very low minimum dollar amount of 1$ at that. If you are looking to have access to a great number of stocks and ETFs and you regularly trade via the mobile app, this is the perfect broker for you.
Just make sure that you understand some disadvantages that come with trading fractional shares through Fidelity and some through any broker. Even though there’s not much you can do about them, what fractional shares provide you with make them worth it.
If you have enjoyed this article, please share it with others. If you have any questions, please let me know in the comments and I will answer them as soon as I can.
Till next time…
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