How to Trade Fractional Shares on Robinhood

If you want to know how you can start investing with a limited cash flow, my advice is simple – look into buying fractional shares, which are available through brokerage firms, like Robinhood.

Robinhood is a fast-growing online broker that can provide full access to stock trading and ETF trading. If you’re just starting out in the market, you really can’t go wrong with Robinhood. It’s a great way to learn how Wall Street works and start building a portfolio.

Here’s how to start stockpiling fractional shares with Robinhood Financial.

Investing in Fractional Shares with Robinhood

Robinhood is a modern brokerage and a popular mobile investing app. It’s ideal for younger investors and people who want to dip their toes in the stock market and buy individual stocks, exchange-traded funds (ETFs), and cryptocurrency.

Signing up for Robinhood will give you access to over 5,000 stocks and ETFs from U.S. exchanges. The app comes with real-time, commission-free trading.

In addition, Robinhood now has an IPO feature, which lets you get in early on a company’s IPO. However, buying at the IPO price won’t guarantee that you’ll make money. But if you want to take a gamble, Robinhood allows you to do just that.

Does Robinhood offer Fractional Share Trading?

Robinhood users can get started with fractional trading for as little as $1.

When you buy fractional shares with Robinhood, you can see your position on your main dashboard right alongside your other investments. This makes it easy to track your progress over time and see how your portfolio stands at any given time.

What are Fractional Shares?

In short, fractional shares are smaller pieces of individual shares of publicly traded companies or funds.

When you buy a fractional share of a company, you purchase a portion of a share. To illustrate, suppose a company’s stock is selling for $100 per share. However, you only have $25 sitting around to invest. Instead of buying a whole share, you might invest $20 and end up with 0.20 shares.

If you invest in a company that pays dividends and set up a dividend reinvestment plan, you can potentially work your way up to a full share over time. Investors often use fractional shares to buy portions of companies with expensive share prices, like Amazon, Apple, Berkshire Hathaway, and Tesla.

Benefits of Fractional Share Investing
  • Access a wider pool of investments: Investing in fractional shares lets you buy pieces of publicly traded companies in increments, even if you only have a little bit of money. In other words, it’s a way to expand beyond penny stocks and put your money into companies that you believe in.
  • Gain tighter control: This strategy also gives you more control when buying stocks. Through fractional shares, it’s possible to buy the exact amount that you want at any given time. For example, if you want to invest $100 into a company that’s selling for $80/share, you can end up with 1.25 shares instead of having to only settle for one.
  • Diversify your portfolio: Fractional trading is one way to diversify your portfolio and reduce risk. Diversification involves spreading small amounts of money over several securities instead of dumping it all into one stock.

How to Trade Fractional Shares with Robinhood

Trading fractional shares on Robinhood is a snap. Here’s a step-by-step breakdown of how to get up and running on the platform.

1. Open a Robinhood account

The first thing you’ll need to do is head over to Robinhood and open a free account.

If you open a regular brokerage account, you won’t have to maintain an account minimum. However, if you opt to open a Robinhood Gold account, you’ll have to fund at least $2,000 for a margin account.

Once you complete the brief registration process, it’s time to apply and wait to see whether your application is approved. At this point, Robinhood will either approve you outright or ask for more data.

Should the company need more information, they will provide clear instructions for securely uploading the requested documents. Be patient: This can take a few extra days to complete.

2. Fund your account

Once your account is up and running, the next step is to fund your account.

To deposit money into Robinhood, tap the “Account” tab and then select “Transfers.” After that, tap “Transfer to Robinhood” and select the account that you want to pull from. Enter the deposit, review the amount, and submit the request.

Robinhood allows up to five deposits per business day. Unfortunately, the company doesn’t accept mailed check deposits.

Deposits can take up to five business days, so you may have to be patient after submitting your request. Change your mind? It’s possible to cancel your transfer at any time.

Robinhood also enables direct deposits and automatic deposits for regular recurring investments.

3. Search for companies you like

While you’re waiting for your money to clear, start looking for some companies that you want to invest in.

My advice is to look outside of Robinhood when researching stocks. The app is great for making quick investments, but it lacks robust in-app research tools.

If you need a helping hand, the Motley Fool Stock Advisor is a great resource to consider.

4. Decide whether to trade in dollar amounts or shares

Once you pick a company and want to buy a fraction of a share, the next step is to decide whether you want to trade in dollars or shares.

If you place a trade in dollars, you can determine how much money you want to buy or sell a stock for. And if you opt to trade in shares, you can tell the app the number of shares you want to buy or sell — pretty straightforward.

Robinhood supports buying and selling full shares and fractional shares. When trading in shares, you can buy or sell as little as 0.000001 shares at a time.

I recommend buying fractional shares in dollars. That way, you can customize your trade down to the penny, giving you more control over your specific purchase amount.

Cancelling a pending order

Robinhood lets you cancel pending fractional orders during trading halts and when placing orders outside of regular trading hours.

5. Track your investment

After the order goes through, you’ll still have to monitor your progress over time to make sure your portfolio is moving in the right direction.

Key items to pay attention to:

  • Stock splits: In the event of a forward stock split, you’ll gain a proportional amount of fractional shares. For example, if you own 1.5 shares of a company and it has a 2-for-1 forward split, you would wind up with three shares after it takes place. Similarly, in a reverse 1-for-2 split, you would wind up with half of your current shares — in this case, 0.75 shares.
  • Voting rights: As an owner of fractional shares on Robinhood, you may have the opportunity to vote in shareholder meetings. So keep an eye out for any communications to that effect. Robinhood also provides voting reports to shareholders through the app, so you can stay on top of the company’s performance.
  • Dividends: Eligible shareholders who own fractions of stock can receive dividend payments through Robinhood. The company issues payments based on the fraction of the stock that you own, and rounds to the nearest penny.

6. Keep making trades

One of the downsides to fractional trading is that it can take a lot of time to see noticeable gains if you only move a small amount of money in each transaction.

To make progress, you should get into the habit of trading on a regular basis. You can also set up recurring deposits to keep money flowing into your Robinhood account. As your balance grows, you’ll be encouraged to keep investing.

Alternatives to Robinhood Fractional Trading

Not sure whether Robinhood is right for you? Here are a few popular investment platforms that also support fractional trading.

Charles Schwab

Schwab is one of the most popular U.S. brokers, thanks to its robust trading platform and excellent research tools.

Schwab supports fractional trading through Stock Slices. This program enables you to buy fractional shares of any company in the S&P 500 starting at just $5 per trade.

Schwab doesn’t charge commissions when you trade online.

Fidelity

Fidelity is another popular broker that has a powerful online trading platform. Fidelity offers Stocks by the Slice, which lets you access more than 7,000 U.S. stocks and ETFs starting at just $1 and with no max per order.

And just like Schwab, Fidelity doesn’t charge commissions when trading U.S. stock and ETFs online.

Webull

Webull offers a free stock when you sign up, just like Robinhood does. You also receive a second free stock after you make a direct deposit of any amount.

The app makes it possible to trade fractional shares of stocks and ETFs starting at just $5 and doesn’t charge commissions either.

Stash

Stash is a personal finance app that allows customers to purchase fractional shares of ETFs and some single stocks. This platform is designed specifically for beginner traders. So, if that sounds like you, Stash might be worth checking out.

SoFi

SoFi allows fractional trading for more than 4,000 stocks and doesn’t charge any commissions. The company lets you start with just $5.

Frequently Asked Questions

Does Robinhood offer free stock to sign-up?

One of Robinhood’s most popular incentives is its free stock promotion. When you sign up for an account, the company gives you a share of stock that’s worth up to $250 in value. Of course, most of the free stocks that Robinhood gives out are worth much less.

Why can’t I buy fractional shares on Robinhood?

Robinhood doesn’t require any advanced authorization to buy fractional shares, as they require when trading options. Anyone can trade fractional shares in Robinhood.

If you experience technical difficulties trying to buy fractional shares in Robinhood, visit the company’s support center.

What brokerages allow fractional shares?

Fractional shares are available through brokers like Schwab, Fidelity, Interactive Brokers, Webull, SoFi, and Stash. That said, you may not be able to buy fractional shares of every single security.

Keep in mind that not all brokers support fractional trading. For example, E*TRADE, which is a popular broker, doesn’t allow it.

Can you transfer fractional shares on Robinhood?

Robinhood doesn’t let you transfer fractional shares to another platform. Instead, the company will liquidate your fractional shares and give you the cash value.

Can you buy crypto on Robinhood?

Yes. Robinhood currently supports Bitcoin (BTC), Bitcoin Cash (BCH), Bitcoin SV (BSV), Dogecoin (DOGE), Ethereum (ETH), Ethereum Classic (ETC), and Litecoin (LTC).

Cryptocurrency is highly volatile. If you decide to invest in any of these assets, be sure not to put up anything more than you’d be comfortable losing.

Is Fractional Trading on Robinhood Worth It?

It largely depends on where you are in your investing journey.

Robinhood is a great option if you’re at the novice or intermediate level and want a mobile app that makes it fast and easy to make trades. The app comes with minimal fees and it’s very easy to use.

Of course, advanced investors can use Robinhood, too. But in my experience, the lack of advanced data analytics and research tools can be very limiting. Do well enough, and you may eventually want to graduate to a more robust platform.

As a disclaimer, buying fractional shares of a company won’t protect you from market volatility. In fact, purchasing a fraction of a share is no less risky than buying an entire share. But, this strategy can make it easier to spread your money across different companies, which can reduce risk.

So, what are you waiting for? Develop the right strategy and stick to it, and you’ll be well on your way to financial freedom before you know it.

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