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>>> Want a 'slice' of a stock? Demand booms for fractional shares as markets soar


by Ethan Wolff-Mann

Yahoo Finance

June 12, 2020


https://finance.yahoo.com/news/fractional-shares-trading-demand-as-stock-market-rally-180837763.html


If you wanted to throw $200 into Amazon stock (AMZN) a few years ago because you saw a UPS guy with nothing but brown boxes with blue tape, you’d have been annoyed.

The stock— which cost $1,700 per share two years ago and is now over $2,600 — had a sticker price similar to a carbon-fiber bicycle, or a month or two (or three) of rent, depending on where you live.

But last year, popular stock-trading apps Robinhood and SoFi started giving investors the chance to buy less than a single share of stock, something called “fractional” or “partial” shares. Though these products can have a few limitations, they allowed anybody to buy a stock based on a dollar amount. (Well, not anybody; Robinhood has a waitlist with over 1 million people.)

This spring, fractional shares have been extremely popular as new investors have jumped to own shares — or shares of shares — of companies they couldn’t before. Big players like Fidelity and Schwab (SCHW) have joined, bringing the phenomenon to the investing mainstream.

The boom in fractional shares has coincided with a stock market boom, as the S&P 500 bounced up by around 40% from its low in late March.

It led many to wonder whether a new class of investor is a factor in the gains, enabled by stimulus money, no sports or betting, and perhaps the ability to buy small chunks of big stocks. (Barclays research analysts, for what it’s worth, says no, though this is hotly debated.)

Huge demand for tiny pieces of big stocks

Fractional shares have existed for many years, usually as a part of dividend reinvestment plans. A dividend for a stock position might not kick off enough to buy a whole new share, so a person reinvesting was allowed to end up owning a number of shares with a decimal point.

But in the past few years, people thought: What about just buying stocks that way? M1 Finance was one of the first companies to offer fractional shares in 2017. SoFi added the feature a year ago, and Square’s CashApp and Robinhood followed — giving the trend enough gas to convince Fidelity to launch in January.

Since the coronavirus crisis, fractional shares have taken off to a startling degree, and just last month Schwab joined in on the fractional share bandwagon. Everybody seems to be “democratizing” investing by letting people buy small, and a lot of people are doing just that.

According to SoFi, a broker that offers both free trades and fractional shares, 40% of all trades are fractional versus whole shares and 52% of customers' first trades are fractional.

M1 Finance CEO Brian Barnes told Yahoo Finance that roughly half of its 200,000 trades per day on its platform come in sizes of less than one share.

For CashApp, fractional investing saw the fastest adoption of any product on the platform, with the average customer buying around $20 worth of stock per purchase. And in April, when stimulus checks hit many accounts, CashApp's stock brokerage volumes saw their highest monthly totals ever.

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