Buying stocks is a very tricky prospect for many. It is definitely not for the faint of heart. When you buy stock in a company, you become a shareholder of that company. Stock purchases represent ownership in a company. An investor or a trader does have options when buying stocks, and buying fractional shares is one option.
When you are ready to buy stocks you have a few considerations about where you will make your purchase. You can use a full service broker who will charge a commission and offer advice, you can choose a discount broker who will impose a discounted commission, or your can trade with an online broker and enter your own order. Fractional share purchases are available directly through a particular company.
Stocks are purchased in whole numbers on the major stock exchanges. Trades for less than 100 shares are called odd lot share purchases. A full service or discount broker cannot buy fractional shares.
Many companies allow shareholders to reinvest their cash stock dividends and subsequently purchase more shares with the dividends. Sometimes a company will announce a stock split or stock dividend giving the holder additional shares. Both scenarios can result in fractional shares that can be liquidated upon request.
Many transfer agents for listed and traded companies allow investors to participate in DRIPS or dividend reinvestment plans. Individuals take advantage of this by purchasing shares on a continuous or random basis and by investing small amounts of money. In this case, fractional shares can be purchased.
It may take a while to build up a position when buying fractional shares. If the objective is to trade or to make quick money, fractional share purchases will not do.
Keeping track of fractional share purchases for tax records can be tricky and time-consuming. Make sure to keep all confirmations of any transactions.
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