Why invest in fractional shares? Here is everything you need to know about how to buy fractional shares.
Fractional shares are a type of investment that can help investors to access the stock market at a lower cost.
Share dealing brokers in the UK, such as eToro and Trading 212, offer investors the opportunity to invest in fractional shares as a low-cost of accessing the stock market.
In this guide, we explain the ins and outs of how to invest in fractional shares in the UK. Within it, we cover the many different aspects of how this investment scene works and what factors you need to consider before you purchase your first fractional share!
Let’s suppose you are interested in a stock like Amazon. However, the stock in question comes at a huge share price of over $3,000.
This is where the concept of fractional shares comes in.
Put simply, this allows you to invest in a company by purchasing only a fraction of one share. This way, you can buy stocks of any company with whatever amount you have available.
If you are eager to find out more about fractional shares, you have arrived at the right place. We have put together an in-depth guide on how to invest in fractional shares UK from the comfort of your home.
When investing in fractional shares UK, the first step is to find a regulated online broker that supports this feature and then open an account with them.
For those who are in a rush, we suggest that you consider eToro for your fractional share investments.
The broker holds licenses from the FCA, ASIC, and CySEC - and more importantly, you can purchase fractional shares without having to pay any commission. Don't worry, we will walk you through every step of this process in the later sections of the guide.
Your capital is at risk. Other fees apply.
The entire process can be completed in a few minutes. However, in order to swiftly decide which fractional shares to invest in, it is best that you have an understanding of the ins and outs of the stock market.
With this in mind, let us get started by explaining the basics of fractional shares UK.
The Fundamentals Of Fractional Shares
Fractional shares are one of the most effective ways for you to build a highly diversified portfolio with limited capital. However, much like any other asset, you will first need to know how the market works before making any investment decisions.
As such, we will start by explaining what fractional shares are and how they can be of advantage to and your financial goals.
What Are Fractional Shares?
As you can gather from the name, a fractional share is a portion of one company stock.
In other words, it means that - when you invest in fractional shares you will be owning only a fraction of a single stock, rather than one full share.
This phenomenon is one of the best ways for you to drip your toes in the stock market - without having to spend a lot of money. Crucially, the feature enables you to buy fractions of shares regardless of what the current market price is.
In effect, if the entry price of the stock is a barrier to your investment goals, fractional shares can be an ideal solution for you to enter the market.
Advantages of Fractional Shares
If you are considering fractional shares UK, it is best to start with why you should invest in them. This particular type of asset can be of benefit to you for a number of reasons - such as:
You can Invest in Stocks with Small Sums
The most significant advantage of buying a fractional share is that it allows you to buy a stock that might otherwise be too expensive. This is especially useful for those who want to enter the stock market for the first time - but want to do so with small stakes.
That said, if you are only looking to buy UK shares, this particular advantage might not be of interest to you. This is because shares listed on the London Stock Exchange (LSE) are priced in 'pennies' rather than 'pounds'.
Meaning, the shares of FTSE 100 companies are relatively cheap anyway - thus making it possible to start your investment endeavours with low amounts.
To give you a better understanding, here are some example stock prices of some of the leading UK shares at the time of writing in early 2021:
- Tesco: 223.70p
- Barclay : 174.06p
- BP: 323.55p
- Sainsbury: 231.30p
- HSBC: 442.95p
As you can clearly see, these are a few of the most well-established stocks in the UK. But, their share prices are listed at relatively low prices.
On the contrary, if you want to gain exposure to shares of popular US companies, you are looking at much higher stock prices.
Take a look at the prices of some leading US stocks at the time of writing:
- Netflix: $510.96
- Amazon: $2977.77
- United Health: $333.81
- Berkshire Hathaway: $296,620
- Tesla: $602.20
As you will not fail to notice, Berkshire Hathaway is priced at an exponential amount. If you were to invest in a single share of this Warren Buffet company, you would need capital of nearly £215,000!
Now, thanks to the availability of fractional shares, you can purchase such costly stocks without having to break the bank.
Invest the Specific Amount Available in your Budget
In the conventional method of investing in stocks, you can only buy whole units of shares. In other words, you cannot always find an investment that is precisely the same as your budget.
- Let us suppose you are interested in purchasing the shares of company ABC.
- The stocks of the company are listed at £32 each.
- You have £200 available in your brokerage account.
- If the broker does not offer fractional shares, then you can buy 6 individual stock (£32 x 6 = £192)
- This will leave you with £8, which will be lingering uninvested in your brokerage account.
On the other hand, if you can gain access to fractional shares, you can now buy 6.25 units of ABC shares (£200/£32).
In other words, fractional shares makes it possible for you to find investment opportunities that mirror the exact same amount you have at your disposal.
Build a Diversified Portfolio
As you may have noted from the section above, the most well-known stocks available today can also be the most expensive. If you are on a restricted budget - you are likely to be limited to penny stocks.
These are unproven companies with a small market valuation, and so often make for a poor choice of investment.
However, with fractional shares, you can buy a part of any publicly-listed company - including the likes of the biggest US stocks worth thousands of pounds.
As such, you can create a well-diversified portfolio made up of heaps of different shares - without having to invest considerable sums.
- Suppose you have £2,000 available to invest.
- In order to minimise your risks, you want to invest £100 in 20 different companies.
- If using a traditional broker, this strategy would be practically impossible - because each company stock differs in value.
In such cases, the chances are you will end up with an uneven portfolio. Even worse, you will only be able to invest in a limited number of shares - which will further affect your ability to diversify.
Yet again, these issues will not be relevant when investing in fractional shares UK.
Combining the two advantages we mentioned above, you will be able to specify exactly how much you want to invest in each company. The only condition is that you will have to meet the minimum investment amount specified by your chosen broker.
Consider this example - where you have £500 ready to invest:
- You can build a portfolio by assigning exactly £100 in five different companies - say in Royal Dutch Shell, British American Tobacco, Tesco, Berkeley, and RBS.
- Regardless of the share prices of these aforementioned companies, you will be able to invest in each share at precisely £100.
As you can find fractional shares of any company, you can make investment choices not dependent on the funds you have but based on which stocks you believe have the chance to perform well.
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How To Make Money from Fractional Shares UK?
Now that we have established the fundamentals of fractional shares UK, now it is time to learn about how you can profit from investing via this feature.
After all, when done correctly, buying fractional shares UK can be highly beneficial for your financial goals in the long run.
Here are a couple of examples to elaborate further:
Example 1: Fractional Shares of Apple
- Let us say that you are interested in purchasing Apple shares.
- At the time of writing, one share of Apple is priced at $119.86 - approximately £86 at current exchange rates.
- You do not want to invest £86 into Apple shares alone.
- As such, you choose a broker that offers fractional shares.
- This allows you to invest just £50 in Apple.
- In other words, you will own 58% of a single Apple stock (£86/£50).
Example 2: Fractional Shares of Tesla
- At the time of writing, Tesla stock is valued at $558.70 per share.
- Meaning, in order to invest in a single Tesla share, you are going to have to put up about £404 based on current exchange rates.
- However, since you do not want to invest this sum only into Tesla, you decide to find a broker that supports fractional ownership.
- This allows you to invest just £100 into Tesla.
- By dividing £100 by £404, you can figure out how much Tesla stock you own.
- This comes to 0.24 - meaning you own 24% of a single Tesla stock.
These examples demonstrate that as long as you put up the minimum amount required by your online broker, you can purchase any fraction of any company of your choosing.
Now, similar to a traditional stock purchase, owning fractional shares also comes with other added perks.
Profit from the Rising Share Prices
In its underlying concept, fractional shares function the same as traditional stocks. Meaning, you invest in shares of a company expecting that it will perform well in the future - eventually increasing the value of your investment.
In other words, if you are able to sell the shares at a higher price than you originally bought them for - you will end up with a profit.
However, with fractional shares - you will need to calculate the profits in terms of fractions instead of whole units.
As you might be thinking that, this is a complex process at first glance. Therefore, we suggest that you base your calculations on percentages rather than stock prices.
To give an example - when buying shares in the conventional sense, here is how you will calculate your profit.
- You take the price at which you sell the shares.
- You subtract the price you paid for the shares at the time of purchase.
- You then multiply the difference by the number of shares you own.
This will tell you how much profit you made on the investment.
In the case of fractional shares, the calculation of your profit will be a little different. You can do it as follows:
- Suppose you invest £1,000 into BP shares,
- At the time of the purchase, BP stock was valued at £150 per share.
- At the time of sale, BP shares are priced at £175.
- This translates to an increase in price of 16.66%.
- On your investment of £1,000 - this amounts to a profit of £160.
In this method, you do not have to account for the exact number of shares you own. Instead, you look at the profit you made in terms of percentage increase and then multiply this by your original investment!
Earning Dividends on Fractional Shares UK
Similar to stocks, if the company pays out dividends, then you are entitled to receive your share of any payments. The amount you receive will be in line with the number of fractional shares you own.
Once again, you will need to calculate the dividends on your fractional shares by looking at the percentage you own.
Below is an example to show how fractional shares UK works with respect to dividend payments:
- Let us say that you own £2,000 worth of IBM shares.
- We’ll say that the value of one share is £430, so you own 4.6 shares.
- Now, let us suppose that IBM pays out a dividend of £20 per share.
- Since you own 4.6 shares, you will be entitled to £92 in dividends (£20 x 4.6 shares).
Do not let this somewhat confusing calculation stop you from investing in fractional shares. Your chosen trading platform will handle all of this for you, and the dividend proceeds will be directly deposited in your brokerage account.
In other words, with the right online broker, investing in fractional shares UK can be a breeze.
Your capital is at risk. Other fees apply.
Tips For Investing In Fractional Shares UK
Like any other financial asset, it is crucial that you do your research when investing in fractional shares.
After all, every investment comes with a certain amount of risk, and being educated about the market parameters will help you keep your exposure to the minimum.
When you invest in fractional shares, you are expecting the price of the shares to increase in the future. That said, there are several factors that determine the value of a stock.
As an investor, you can employ a few tips that will help you make informed decisions.
Tip 1: Invest Small Amounts
If you are new to the investment arena, fractional shares are one of the best ways to test the waters. You can start by investing small amounts - thus limiting your risk, yet giving you the opportunity to invest in different companies.
Fortunately, several online brokers allow you to invest small amounts in shares - making this approach easy to follow.
For instance, on eToro, you can invest from just $50 into each stock via its fractional share tool (about £35). This will allow you to learn the ropes of the investment scene without the need to inject large sums.
Tip 2: Diversify your Investments
As we discussed earlier, fractional shares UK allow you to diversify your portfolio by including an assortment of stocks.
This is crucial to spread your risk across different companies and sectors, especially when the markets can be volatile and unpredictable.
If you are investing in the fractional shares of only one company, you are putting all your eggs into one basket. In case your speculation goes wrong, a diversified portfolio can help reduce the consequences.
Tip 3: Learn Fundamental Analysis
Investors rely on different strategies to determine which stocks they want to purchase. Fundamental analysis is the method of researching the market to understand the basic factors that will affect a company's future standing.
It involves the evaluation of the health and performance of a company in order to find out whether it will make for a good investment.
We are not saying you have to do in-depth research or use technical indicators to learn about the stock market. However, you can get an overview by merely keeping abreast with the latest news, any recent developments in the related sectors, the socio-political landscape, as well as by studying market movements.
Performing fundamental analysis can help you understand whether the company is making any actual profit and whether it is experiencing rising revenues.
If you need help to keep track of the many different factors, you can also sign up for real-time updates from financial platforms such as Bloomberg. This way, you do not have to manually monitor market developments yourself throughout the day.
Tip 4: Take Advantage of Copy Trading Feature
Another way to strengthen your footing in the investment space is to follow the strategies of an expert investor - by using a 'Copy Trading' feature.
You can find this tool on beginner-friendly platforms such as eToro - where you can choose an expert stock investor to follow, and your portfolio will mirror their investments.
All you need to do is invest in the trader, and the platform will take care of the rest for you.
Once you select the amount you want to stake, your investments will follow not only their current portfolio but also their future purchases of shares. You can choose a trader that focuses on fractional shares based on their past performance, average returns, risk score, and more.
Copy Trading allows you to invest in fractional shares UK without having to do any heavy lifting. As such, it is one of the most popular strategies among novice investors.
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How To Find A Good Online Broker To Buy Fractional Shares UK
Before you dive into purchasing fractional shares, you need to make sure that you have selected a reputed online broker that offers this feature.
The internet has hundreds of online brokerage platforms competing for your business. But, the overwhelming challenge is to find one that matches your investment needs.
A beginner investor might be looking at educational resources. Whereas, for a seasoned professional, technical analysis tools might be of more importance.
To that end, here we have created a list of factors that you need to consider when choosing your online stockbroker to buy fractional shares UK.
The most important metric is to ensure that your chosen fractional share dealing platform is regulated by a financial authority.
In the UK, the most well-known regulatory body is the Financial Conduct Authority (FCA). A license from the FCA will ensure that the platform follows the guidelines put forth by the body. This includes regularly submitting for audits, verifying the identity of customers, and ensuring security and fairness on its platform.
In addition, FCA brokers are also mandated to keep client funds in separate bank accounts - segregated from its own working capital.
Perhaps, most importantly, FCA-regulated brokers are also required to protect your funds via the Financial Services Compensation Scheme (FSCS). This additional measure will ensure that if the brokerage platform collapses, you are eligible for compensation up to the first £85,000 of your capital.
As is evident, choosing a broker licensed by the FCA will offer you further security and protection - which will not be available at unregulated brokerage spaces.
That said, note that the FCA isn't the only regulatory body offering licenses to brokerage platforms. You can also find other well-known authorities in different jurisdictions, such as ASIC in Australia, SEC in the US, FSA in Japan, CySEC in Cyprus and many more.
In effect, make sure that your chosen broker holds licenses from at least one of these regulatory authorities before you sign up with them. In the case of eToro, the provider is regulated by the FCA, CySEC, and ASIC.
As we noted earlier, one of the significant advantages of fractional shares is that you can invest in high-priced stocks found in international markets like the US - on a limited budget.
However, in order to facilitate this - your broker should be able to give you access to multiple stock exchanges.
For instance, if you are interested in investing in large-cap stocks listed in the US, you will need to choose a broker that supports the New York Stock Exchange (NYSE) and NASDAQ.
On FCA-regulated broker eToro, you have access to over 2,400 shares spread across 17 different stock exchanges. This means that you are not limited to the fractional shares of companies in the UK alone - but you can invest in stocks listed on global exchanges as well.
To give you an idea, eToro supports the London Stock Exchange (UK), NYSE (US), Hong Kong Stock Exchange (Hong Kong), Paris Stock Exchange (France), and much more!
Deposit and Withdrawal Methods
Once you have verified the broker's license(s) and supported exchanges, your next concern is to find out what deposit and withdrawals methods are available on the platform.
Most brokerages offer support for a variety of payment methods, such as free and instant debit card payments or depositing funds through bank transfers.
However, the latter can take a few days to process - and will not be suitable if you want to start investing right away.
Additionally, brokers such as eToro also support e-wallet payment methods like Paypal and Neteller.
Fees and Commissions
Like all financial platforms in the online space, investing in fractional shares also invites fees and commissions. The specific amount you are liable to pay will ultimately depend on your chosen broker.
Nonetheless, here is a list of the main fees you are likely to see when buying fractional shares online.
Your broker will charge you a trading commission every time you make a purchase of fractional shares. This is usually spitulated as a flat fee.
- For example, let us suppose your broker charges you a flat fee of £8.
- You are investing £1,000 in fractional shares, so you pay a commission of £8 to enter the market.
- At the time of selling, your fractional shares are worth £1,500
- Again, you will have to pay £8 in commission.
As you can see, you need to pay a commission when you enter the market and again when you sell your fractional shares UK.
With that said, brokers like eToro allow you to invest in fractional shares UK on a commission-free basis. Plus, the broker waivers stamp duty tax on UK-listed stocks - so that’s another 0.5% that you will save!
This type of fees is usually charged to process any deposits and withdrawals you place on the site. Some offer free deposits/withdrawals while others charge a flat or variable fee.
Inactivity fees come into play if you are not actively using your brokerage account. This fee is usually charged after twelve months of inactivity and will be deducted from your trading balance. However, you can avoid this fee as long as the fractional shares remain in your portfolio.
Investment Tools and Features
By now, we have covered all the essential aspects of a brokerage platform. You should now pay attention to what research tools are offered on the website.
Remember, not every platform will offer additional functionalities, as it might only offer a bare bones share dealing service. As such, you need to have a good idea of what you are looking for in order to find the best broker for your needs.
Take a look at some of the investment tools available on top-rated platforms offering fractional shares.
Web Trading Platform
Check whether the broker supports a trading platform that you can access through its website. This will allow you to invest in fractional shares UK without leaving the broker's site.
Fundamental Analysis Tools
In the stock market, it is crucial that you keep abreast with the latest market news that might impact the price of your shares. If your online broker sends you regular, real-time updates related to your chosen stocks, it will be easier for you to keep track of market prices.
Technical Analysis Tools
Many investors also rely heavily on technical indicators to choose which fractional shares to buy and sell. If you need access to technical indicators and charts, make sure that the online broker offers this.
All decent online brokerage platforms will ensure that it has a wide selection of educational resources offered in multiple formats. Moreover, if you are a beginner, it will be in your best interest to opt for an online broker that offers investment guides in the form of videos, podcasts, articles or with a supportive community.
It doesn’t matter what different functionalities a share dealing platform offers - if you are unable to access them easily.
Make sure to peruse through the online broker's site to figure out whether it is easy to navigate - especially when it comes to buying fractional shares UK.
A well-designed site should be able to cater to your expectations of usability, regardless of whether you are a novice investor or a seasoned professional.
To add further convenience, the best online brokers also offer a fully-functional mobile app that allows you to buy fractional shares UK on the go.
Other Investment Assets
At the moment, you might be focused on fractional shares UK. But in case you would like to diversify your portfolio later, it is best to have access to other financial instruments through the same online broker.
As such, you should also look into what other assets are supported on the brokerage platform. Crucially, FCA-regulated broker eToro offers a wide range of asset classes - including stocks, ETFs, indices, commodities, forex and even cryptocurrencies.
As you can see, successful investing demands that you attend to every detail before you buy fractional shares UK. By following our criteria, you will be able to find an online broker that ticks all relevant boxes.
On that note, if you need a bit of help on this front, we suggest that you consider eToro. This is because you can buy fractional shares UK without paying any commission or dealing fees!
Furthermore, you can gain access to over 2,400 fractional shares across multiple global exchanges. This is in addition to the other asset classes offered on the site.
You can also easily move your funds in and out of your trading account using one of the many payment methods available - which includes debit/credit cards, bank transfers and e-wallets.
All in all, the platform has succeeded in attracting a global clientele of 17 million users from over 140 countries. Whether you are a beginner or an experienced investor, eToro can serve as an intuitive platform for all your investment needs.
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How To Invest in Fractional Shares - A Step-by-Step Walkthrough
If you have read our guide all the way through, by now, you should have a firm grasp on how to invest in fractional shares UK.
In this last section, we walk you through how you can start investing in fractional shares using commission-free broker eToro.
Step 1: Create an Investor Account
You can open your account on eToro by providing the following information:
- Full Name
- Home Address
- Email Address
- Phone number
- Date of Birth
- National Insurance Number
Once you have entered your basic information, you can choose a username and password to create your account.
Step 2: Verification of Your Identity
As an FCA-regulated broker, eToro is required to verify your identity through a Know Your Customer (KYC) process.
All you need to do is provide a valid identity document such as your passport and driving license, as well as a utility bill for proof of address.
As the entire process is automated, you will be able to confirm your account and start investing in fractional shares in just a few minutes.
Step 3: Deposit Investment Funds
As we mentioned earlier, eToro offers support for a wide range of payment methods.
Choose one from the listed options to add funds to your account:
- Debit card
- Credit card
- Bank Transfer
Step 4: Invest in Fractional Shares UK
At this point, your account is funded and ready to use. You can now proceed to select the fractional share you want to invest in. If you know which company's stock you want to buy, you can search for it directly on the platform.
When you have found the stock listing, you can click on the 'Trade' button.
You will have to enter the investment amount in USD - meeting a $50 minimum. When ready, click on 'Open Trade' to complete your first commission-free purchase of fractional shares on eToro!
Your capital is at risk. Other fees apply.
How To Sell Fractional Shares UK
If you think it is time to cash out your investments, you can sell your fractional shares the same way. On eToro, you can find the respective stocks in your portfolio.
You can simply select the particular shares you want to sell, and a popup box will tell you the current price of the shares and how much profit/loss you will make upon cashing out.
How To Invest In Fractional Shares UK - The Verdict
To sum up, fractional ownership can be an excellent way for you to enter the investment space. It not only allows you to buy shares with a limited budget, but it can also give you access to a wider investment pool that allows you to diversify with ease.
If you are eager to start investing in fractional shares UK, we propose that you check out eToro. The FCA-regulated broker gives you access to thousands of shares across many different exchanges without having to pay a single penny in dealing fees.
eToro have proven themselves trustworthy within the stock market over many years – we recommend you try them out.
Your capital is at risk. Other fees apply.
FAQs How To Invest In Fractional Shares UK
Where can you find fractional shares UK to invest in?
In order to buy fractional shares UK, you will have to find an online broker that supports this. One such example is eToro, an FCA-regulated broker that gives you access to fractional shares of over 2,400 stocks - all on a commission-free basis.
Can you buy international fractional shares in the UK?
Yes, you can. However, you will need to join an online broker that gives you access to the NYSE and/or NASDAQ.
Do fractional shares UK give you access to dividends?
If the company pays dividends, then you are entitled to receive your share of any payments. The amount of dividends received will be based on the number of shares you own. However, you do not have to calculate this yourself - as the payment will be deposited directly in your online brokerage account.
What is the minimum capital required to invest in fractional shares UK?
This will be dependent on your chosen online broker. eToro allows you to buy fractional shares at a minimum of just $50 per trade (about £35).
Is it possible to short fractional shares UK?
Yes, you can. But, you will need to trade fractional shares via a CFD trading platform. In simple terms, you will be placing a sell order first and expecting the price of the shares to drop. If it does - you will repurchase the shares at a lower price - turning a profit.