Fractional shares are a fantastic way of putting all of your capital to work and making 100% of your money work for you. ETrade generally offers somewhat limited functionality compared to other brokers, but can you buy fractional shares on ETrade?
ETrade only offers fractional shares in the confines of their dividend reinvestment plan (DRIP). Received dividends can be reinvested automatically and how up as fractional shares in your ETrade account. You cannot purchase fractional shares directly.
Let’s go over this in a bit more detail and explore how fractional shares really work on ETrade. I’ll cover in this article how you can buy fractional shares on ETrade, how to hold them in your ETrade account and how to sell them again once acquired.
Perhaps you already tried buying fractional shares on ETrade by entering a buy order with a decimal number of shares and have gotten the following error message:
“Orders containing fractional shares must be entered as a closing sell order for the full fractional (decimal) quantity owned. Please edit your quantity and resubmit your order”
This error message pops up regardless of which stock or fund you pick and which fraction of a share you are trying to buy. You simply cannot directly buy fractional shares on ETrade.
The above error message also alludes to another issue that is common on ETrade: selling the fractional shares you may own due to participating in a DRIP can only be sold in full. This means that there is no option of only selling part of your current fractional shareholdings.
This could become costly when holding fractional shares of an extraordinarily valuable company, e.g. Tesla, as even a fractional share could be worth a couple of hundred dollars.
As mentioned above the only way to acquire fractional shares through ETrade is by enrolling all your investments in a dividend reinvestment plan and then waiting for dividend payouts to occur. Thus, to buy fractional shares on ETrade, follow these simple steps:
- Invest: Invest in the stock or fund of your choice and hold it in your ETrade account. Pay attention to the ex-dividend date of the fund, so you’ll know when to expect your first dividend payment.
- DRIP: Go to Account > Dividend Reinvestment and check all of your holdings you wish to enroll in the DRIP and receive fractional shares in.
- Get paid: Wait for the dividend payout date to arrive and check your account holdings 1-3 business days later. You’ll find that your dividends have been reinvested as fractional shares.
Remember fractional shares cannot be purchased directly through ETrade. They can only result from dividend being automatically reinvested through a DRIP.
Unfortunately, selling fractional shares on ETrade is just about as hard as acquiring them in the first place. While it is possible to sell the fractions back to ETrade, you will have to do so as a whole.
ETrade does not allow you to sell part of your fractional shares. Additionally, orders with fractional quantities must be entered as market or limit order and must be ordered as a market order if the quantity is less then one share.
Overall, ETrade offers very limited functionality in terms of fractional shares. Fractional shares cannot be purchase directly and can only be sold under several constraints. This kind of rigidness seems far outdated in times of innovative brokers offering zero-commission trades, automated portfolios, and – of course – fractional shares.
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