Fractions for all 🍰

[dan.t (Dan)]

Fractional shares have been part of the Freetrade plan since the start. We want to open up investment in all companies’ stocks or ETFs, no matter how much money a customer wants to invest.

What are fractional shares?

They are essentially as they sound — that is, they are a fraction of a stock.

For example, let’s say you have £25 to invest and one Unilever share costs £50. In that scenario right now, you wouldn’t be able to invest in Unilever shares on any platform. When we roll out fractional shares, however, a Freetrade customer will be able to invest by buying half a share.

Fractional shares also mean that rather than specifying the number of shares to buy each month, for example, you’ll be able to specify a cash amount to invest, which makes it easier to manage as part of a savings strategy and can enable features such as automated reinvestment of dividends in the future.

A new function, a new licence

We have been working with the FCA for some time on being able to offer fractional share investment to our customers. For us, it meant applying for what is known as a ‘Variation of Permission’, or ‘VOP’ to us reg geeks. The additional permission allows us to deal in shares in our own name, which we need to do in order to facilitate customers’ investment in fractional shares.

We were of course already authorised by the FCA to provide services to our customers, but the extra permission means that they hold us to a different standard.

Happily, we can now announce that our application to the FCA has been approved.

A first for Europe

By combining our new permission with the new technology that we have built into our in-house investment platform, we will be the first stockbroker to offer fractional share investment in UK shares and ETFs (and soon, EEA).

In the US, fractional share investment is an established service, which we are also plugging into in order to open this up to our customers for US shares.

You may have come across fractional investment before at some other platforms. In particular, some CFD providers offer fractional investment. Except, in their case, the customer ends up with a CFD position, rather than owning a portion of the underlying share. This is very different from what we have built and presents different risks to customers. With Freetrade, our customers will own a portion of a share, which is held as client assets in accordance with FCA rules.

We are all super excited about this development and the access and functionality it can unlock for our customers. It would be great to hear your thoughts too!

[Baggyb]

Fantastic work! So excited about this.

I guess I should ask the inevitable question about timeframe. Any rough idea? Q3, Q4, 2020?

[Freetrade_Team1 (Freetrade_Team)]

We don’t have a set timeframe to announce yet but you can keep track of our progress building fractional shares on our roadmap. And of course, we’ll share updates here too

[aventus]

Great news. Although I’m not really that much concerned about UK fractional shares, I’m eager to be able to buy fractions of US stocks.

[Freetrade_Team1 (Freetrade_Team)]

Fair enough, they enable some useful functionality too though, this lets us enable you to do more than just buy high priced stocks

@Freetrade_Team1

I’m really excited about fractional shares for a few reasons:

• They let you buy a portion of high priced stocks like Amazon or Berkshire Hathaway, rather than having to invest £1,000+ in one go

• They let us give you a much better user experience when you place an order because you can set the amount that you want to invest & spend exactly that amount when you invest in a company

• They make reinvesting dividend payments, which are often quite small, possible. Saving you from having to keep cash in your account until you’ve saved up enough to buy a whole share

• They’d make providing automated investing much easier

Although please bear in mind that we might not have all of this functionality ready as soon as fractional shares launch

[Dave (Dave Smith)]

Will it be limited to specific fractions (eg 1/10 of a share) or will you just be able to buy any amount such as 57p worth of Unilever or whatever

[Freetrade_Team1 (Freetrade_Team)]

@Dave

will you just be able to buy any amount such as 57p worth of Unilever or whatever

This

[Certi.Curti]

When making a basic order today, let’s say I invest £110 for 5 shares company X and by the time the order executes its £105 for 5 shares, FT currently returns the £5 back to the account to reinvest elsewhere.

Considering we won’t know the price at time of execution, Do we still have this option incase we want to only hold full shares in some stocks?

Rather than own 5.25 shares in company X?

Basically, it would be nice that at launch we can choose to have full or fractional shares with each purchase.

[Dave (Dave Smith)]

So who gets the half penny if the share price drops by 50%

Not that I care about 1/2p, just interested in the mechanics of it

[Freetrade_Team1 (Freetrade_Team)]

Good question! We’ll share more details about how this’ll work when we get closer to launching fractional shares.

[Certi.Curti]

Great, can you put this requirement in as the feature is still being built

[Dave (Dave Smith)]

This will be excellent for dividend reinvestment, if you consider something like Astrazeneca that trades at ~£65 per share, you need quite a big chunk of shares before each dividend is big enough to buy even one more share. Fractional shares will solve this

[Yas]

Oooooh reg geek questions…
Registering the assets own name or nominee name, and will you be re-registering all the currently held assets?
Just interested to know… Does it make DvP more complicated and are you expecting to get more (but obviously rectifying) custody breaks due to this change?

Agree with the comments already about having an option (toggle?) while putting in an order to do fractional or whole unit purchase.

[aventus]

Wow, this is actually awesome! Forgive my ignorance, I wasn’t aware of it

[dan.t (Dan)]

Hi Yas, love a reg geek question.

The carved up share will be held in the nominee name (i.e. held as client assets), not in our name. We won’t need to re-register existing assets for this purpose.

It doesn’t really make DVP more complex and we don’t anticipate more custody breaks. But it does need strong technology to work smoothly, which is why we have been building our own investment platform with this functionality in mind.

[stephen]

So how many 0’s can we now add to the Freetrade share price?

[Dave (Dave Smith)]

Fractions will come in useful when Freetrade IPOs at £hundreds per share

[Woody93 (Jacob Wood)]

Amazing!

Looking forward to auto reinvestment of dividends too - any idea on when this feature may be released?