What is Fractional Shares Trading?
Interactive Brokers is offering fractional shares trading for almost any US stocks for its clients. Fractional shares means stock units that are less than one full share.
Disclosure: Some of the links below are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through to make a purchase.
Why Offer Fractional Shares Trading?
To broaden access to more expensive stocks, offering diversity for your portfolio. Fractional shares trading allows you to trade in smaller amounts, making your (small/ leftover) cash balance work harder for you instead of letting them lay idle in your cash account.
Interactive Brokers seems to be one of the pioneers in offering fractional share trading services for its retail customers. Not too long after its announcement in November 2019, Robinhood and Fidelity have begun to offer similar services for their customers as well.
Who is Eligible for this Trading Permission?
All individual, standalone accounts except those that reside in Israel and Canadian RRSP/ TFSA accounts are eligible.
Please refer to this article by Interactive Brokers for full details.
How to Apply for Fractional Shares Trading Permission?
Log into Interactive Brokers’ Client portal → Settings → Account Settings → Trading Experience and Permissions → Configure → Stocks → Check the box next to “United States (Trade in Fractions)
What Products are Available for Fractional Shares Trading?
US Stocks that are listed on NYSE, AMEX, NASDAQ, ARCA, BATS and OTC Pink with average daily volume above USD $10 million and market cap above USD $400 million.
Non-US stocks are not available for fractional shares trading at the time of writing.
How to Perform Fractional Shares Trading when Trading in Interactive Brokers Platform?
Log into Interactive Brokers‘ Trading screen → Select your preference to trade in terms of shares or dollar amount.
How Much is the Commission?
No additional fees for fractional shares trading. Standard fees apply.
In the case of trading US stocks using the Interactive Brokers PRO (IBKR PRO) account, the minimum fee is USD 1 per order and maximum fee is 1% of the trade value per order.
I personally do not recommend using fractional shares trading to ‘complete’ your portfolio. The trading commission is the same as the standard trading fees which means the fractional shares may not be actually that much cheaper. Besides, having a fraction of the shares may not be sufficient to earn a big enough amount of dividends or capital gains to make the purchase worth your hard-earned money. Hence, I think it is better off to spend the cash on lower- priced stocks or putting them in a high- yield savings account.
Readers who are keen to trade with Interactive Brokers can sign up via my referral link today.
I will be entitled to USD $100 if your trading account reaches USD $333.34 in commissions, at no cost to you.
What do you think of Interactive Brokers’ initiative? Leave a comment to share your thoughts on this!