When a beginner is about to invest in the stock market, they may find many barriers to trading, one of which may be the value of shares. In this case, fractional shares can help. In this article, we will explain what they are, and what are the advantages and disadvantages of this financial instrument.
To understand how fractional stocks work, you need to understand how common stocks work. Simply put, a stock is a share of a company’s business. Often, an investor makes a profit from changes in the value of their shares.
What Are Fractional Shares?
A fractional share is a smaller part of one share. The company’s share is divided into smaller parts for investors who do not want or cannot afford to buy the whole share. Fractional stock trading is great for beginners or traders who want to diversify their portfolios more flexibly and reduce trading risk.
With fractional shares, you can buy a stake in a business without having to pay the full price of the share. Instead, the trader uses whatever amount he has to trade.
Example of Fractional Stock Trading
You have $100 to trade, but the stock you want to buy is trading at $2,000 a share, which makes it too expensive. Thanks to fractional shares, you can invest $100 by buying part of one share.
Flexible Trading with Fractional Stocks
Fractional stocks allow traders to buy shares in increments appropriate to their financial situation. On the EXMO Margin platform, you can also use leverage to increase your trading volume. Using the same $100 and 20x leverage, you can buy the equivalent of one share and get a full profit on the difference in value.
Advantages of Fractional Shares
The main advantages of trading fractional shares:
- Low Capital Requirement: Invest in shares without needing to purchase a full share.
- Diversification: Use the same amount of capital to acquire different stocks and reduce portfolio risk.
- Ease of Access: Easily buy shares of companies you’re interested in.
- Leverage Options: Amplify trading positions and potentially increase profits.
Disadvantages of Fractional Shares
It is important to note the disadvantages:
- No Voting Rights: Fractional shareholders often waive their right to vote.
- Platform Limitations: Shares cannot be transferred outside the trading platform.
- Inherent Market Risks: General volatility, economic challenges, and negative reports can impact value.
Where Do Stock Prices on Trading Platforms Come From?
Share prices are based on the current NASDAQ and NYSE indices. They absolutely exactly match the quotes that are presented on the main US stock exchanges. Hours of operation are also the same.
Working with Orders and Positions in a Closed Market
- You cannot create orders in a closed market. The user needs to wait for the stock market to open (9:30 New York time).
- The user can cancel their order after the market closes, but they cannot edit an order in a closed market.
- There is the possibility to add a margin while the market is closed.
- It’s impossible to reduce the margin while the market is closed.
- A trader cannot close a position while the market is closed.
Conclusion: Are Fractional Shares Worth It?
Fractional shares are a game-changer for investors with limited capital or those looking for flexible diversification. They allow traders to enter high-value stocks and ETFs with smaller investments and provide a practical way to manage risk. By using leverage and fractional shares, even beginner traders can confidently explore the stock market while maintaining a diversified portfolio.
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