What Is a Fractional Share?
Let me explain what a fractional share is: it's less than one full share of equity. You might end up with these from stock splits, dividend reinvestment plans (DRIPs), or other corporate actions. Typically, you can't get fractional shares directly from the stock market, and while they hold value for you as an investor, they're tricky to sell.
Understanding a Fractional Share
Fractional shares can come from several sources, and I'll walk you through them. Think about dividend reinvestment plans, stock splits, mergers, and acquisitions—they all can lead to these partial shares.
Dividend Reinvestment Plans
If you're in a dividend reinvestment plan (DRIP), you'll often get fractional shares. This is where a company or brokerage lets you use your dividend payouts to buy more of the same shares. Since the amount reinvested isn't always enough for whole shares, you end up with fractions. The same goes for reinvesting capital gains or using dollar-cost averaging programs—they can leave you with fractional shares too.
Stock Splits
Stock splits don't always give you an even number of shares. Take a 3-for-2 split: it creates three shares for every two you own. If you have an odd number, like three shares, that becomes 4½ after the split. Five shares turn into 7½, and so on. That's how you get fractions.
Mergers and Acquisitions
In mergers and acquisitions (M&As), companies combine stock using a set ratio, which often results in fractional shares for you as a shareholder. Some brokerages even split whole shares on purpose to sell fractions to clients, especially with expensive stocks like Amazon (AMZN) or Alphabet (GOOGL). Back in March 2020, AMZN was over $1,800 per share, and GOOGL over $1,100, so fractions make it possible for individual investors like you to buy in.
For instance, if you're a young investor with $1,000, you couldn't afford a full Amazon share, but a brokerage might let you buy one-third of a share with half your money and use the rest for full shares in cheaper stocks.
Important Note on Corporate Actions
During stock splits, mergers, or acquisitions, you sometimes have the option to get cash instead of fractional shares. Keep in mind, that cash income is taxable.
Trading Fractional Shares
You can only sell fractional shares through a major brokerage firm, which combines them with others to make whole shares. If the stock isn't in high demand, it might take longer to sell than you'd like.
Not everyone wants to keep fractional shares, especially if they got them unexpectedly from a split. Say you have 225 shares of XYZ at $12 each. After a 3-for-2 split, that's 337½ shares at $8 each. If XYZ is popular, you'll find a brokerage to take the fraction or sell you another half to make 338 whole shares.
Real-World Example of a Fractional Share
In November 2019, Interactive Brokers was the first major online broker to offer trading in fractional shares. Then, on January 29, 2020, Fidelity announced they'd allow trading of fractional shares in equities and ETFs.
Key Takeaways
- A fractional share is a portion of an equity stock that is less than one full share.
- Fractional shares often result from stock splits, which don't always result in an even number of shares.
- Mergers or acquisitions create fractional shares, as companies combine new common stock using a predetermined ratio.
- Capital gains, dollar-cost averaging, and dividend reinvestment plans often leave the investor with fractional shares.
- Fractional shares don't trade on the open market; the only way to sell fractional shares is through a major brokerage.
Other articles for you
Lloyd’s of London is a historic insurance and reinsurance marketplace where syndicates provide coverage for various risks.
A service charge is an additional fee for services tied to a primary purchase, distinct from optional tips, and common in various industries.
Fixed costs are business expenses that remain constant regardless of production or sales levels within a relevant range.
Skin in the game means company insiders investing their own money in the business they manage to align interests with outside investors.
This text lists and details the best high-yield savings account rates for September 2025, highlighting top options up to 5.00% APY from various banks and credit unions.
Discretionary investment management involves a portfolio manager making investment decisions for clients without needing their approval for each transaction.
Kurtosis measures the tailedness of a data distribution to assess investment risk from extreme price fluctuations.
The dividend payout ratio measures the portion of a company's earnings distributed as dividends to shareholders.
A letter of intent (LOI) is a preliminary document outlining key terms of a potential business deal between parties.
A pledged asset is collateral used to secure a loan, allowing borrowers to reduce down payments and interest rates while retaining ownership.