Fractional shares (US)


(Justin T) #1

I’m still playing catch up as there’s too much info on this forum to digest.

So apologies if this has been asked or confirmed before:

US shares will be available in fractions, yes? You’ll place a cash order and it will result in a share ownership down to how many decimal places? I understand US won’t be available version 1.0 but why not? I can buy major US shares on the LSE already (with higher costs). Fractional are even supposedly possible on some trading sites already - so what’s the delay? If the US operation is outsourced for cost reasons then isn’t the integration of a 3rd party custody solution no more than data/message consumption?


ISA details
(Rob Sexton) #2

HI Justin,

That’s correct, we will be offering fractional US ownership, and we are pushing ahead with this integration. Myself, Adam and Ian were actually out in New York last week meeting our partners out there and moving the integration forward.

However as we provide a regulated service, there are inevitably complexities in hooking up new services, and so it takes time. We are working as hard as we can to bring it to you as quickly as possible, but in the interest of launching sooner rather than later we will initially launch with just UK shares.


(Alex Sherwood) #3

Check out Freetrade’s Twitter for a few behind the scenes photos from that trip :us:


(Justin T) #4

I know this feels like a slightly dumb question but how many decimal places will the fractions stretch too? Curious from a maths point of view.


(Rob Sexton) #5

That’s still being finalised, but it’ll be a good few as we want to make sure the most expensive stocks (excluding maybe Berkshire Hathaway A shares…!) are affordable to start investing in. You should expect to be able to invest in all the big names with a small (hopefully single digit) investment


#6

How does fractional trading work? If two Freetraders place buy orders for eg 0.1% of a BRKA share does Freetrade need to buy 1 whole BRKA share to cover those fractional orders, and it just holds remaining 99.9% of the BRKA share as an Freetrade-owned asset (?) until more Freetraders order more fractions of BRKA?


#7

(sheesh, my maths!)


(Vladislav Kozub) #8

I think BRKA has been intentionally mentioned by Rob. There is no point owning A if you can have BRKB which are the same thing but only 1/1500.

The most expensive S&P500 stock from the current universe is Booking Holdings, which is about $2000 per share. Hence to be able to invest £1, 5 decimal places seems to be just enough, taking into consideration future growth.


#9

ok, sure, I was just using BRKA as an example of a stock. Imagine that my question said “a share in a company” rather than “BRKA” :slight_smile: - would still be interested to hear how fractional trades work.


(Chris) #10

I think this is the last official word on fractional shares from the team.

I thought I’d seen something detailed but I can’t find it.


(Vik Paw) #11

Not rushing for an answer on this, but I’m intrigued to know whether there would need to be a minimum order amount before a low number of fractional orders becomes viable and how the business can balance the risk of owning fractions of shares whose value may go down. I know it’s a relatively small risk, but it’s there and is not ideal.


(Justin T) #12

This will depend whether Freetrade or the US partner will be holding the remaining fractions. If Freetrade are then I second your question. If they are not then the problem goes away. Seems like we won’t be getting an answer on this immediately though.


(Rob Sexton) #13

It definitely sounds like a longer blog on fractionals is needed - something we can do nearer the time when we have bottomed out all the details.

But theoretically someone has to hold the “unallocated” portion of a share that is not owned by a customer (which can be sold to any future customer who wants a fraction of that share), as the market only buys and sells in whole shares. They are therefore exposed to any movements in the value of that share, but that is the cost of offering fractionals. Worth noting that the exposure is heavily limited by the fact that the “unallocated” element should always be less than one share


(Alex Sherwood) #14

Maybe this is getting too technical but I assume that, that would have to be Freetrade - so they’d have to buy the whole share & then hold the remainder, in order to sell the fraction to a user?

In which case, I’d be interested to hear more about how you manage that exposure :wink:


(Dave Smith) #15

The maximum exposure would be less than one of each share in the whole trading universe. The number of companies with a big enough share price to pose a significant risk is pretty small. Also don’t forget there’s also some potential for Freetrade to profit from fractional shares if they go up


(Vladislav Kozub) #16

In support of what @Dave said, the market does go up 5 to 10 per cent on average over long term so this “X<1*TheUniverse share-holding” would only be of a benefit to Freetrade.


#17

I’d very interested to hear more details on fractions. Searching for somewhere to easily invest in fraction shares is what led me to Freetrade in the first place. It seems almost impossible to find someone else in the UK who offers is - is there anyone else? It’ll make dividend reinvestment easy and flexible plus not having to always buy whole shares of companies with prices in the hundreds of dollars will make investing so much easier. Eagerly waiting for the date after the 18th September when US shares are available.


(Vik Paw) #18

@alexs I read somewhere it could be the US intermediary that holds the unsold fraction, which gives them less risk as they can also sell them to other parties.

I’m not concerned about the risk as it’s low I just wonder how it works and whether there are restrictions on us as consumers or whether the risk is held by Free trade.

I have direct US holdings and I think all offer a DRIP with fractionals. So it wouldn’t just be the high value shares that have the fractional issue if dividends on all shares are to be taken into account.

Just to clarify are we looking at having fractional holdings in the UK as well?


(Alex Sherwood) #19

Ahh that sounds more logical.

I’m guessing it’s the latter but it’d be good to have some confirmation of that (not that this is urgent while we can’t actually buy fractional shares).

:muscle:

There’s a dedicated topic for the UK. But the TL;DR is Freetrade won’t offer them I’m afraid.


(Alex Sherwood) #20

A post was merged into an existing topic: Fractional shares (UK)