The Rise of Fractional Share Trading

The Rise of Fractional Share Trading

Robinhood (pvt.), Fidelity (pvt.), Schwab (tkr: SCHW), SoFi (pvt.) and Square (tkr: SQ) each have fractional share investment offerings. Fractional shares enable investors to purchase one U.S. Dollar’s worth of a given equity ($5 in Schwab’s case), rather than a full single share. For example, investors may purchase $1 worth of Amazon (tkr: AMZN) rather than pay $2,524 per share. Fractional share trading is popular with Millennial investors and has powered the share recovery in bankrupt Hertz (tkr: HTZ) and other struggling companies such as American Airlines (tkr: AAL) and General Electric (tkr: GE). Fractional share trading and Fed liquidity have made for strange days in the equity market of late.

Fractional share trading further democratizes the equity markets but perhaps ought to come with a warning label:

  • Hertz for example recently filed for Chapter 11 bankruptcy protection, yet the stock was up 115% on Monday.
  • AMC Theaters (tkr: AMC) management recently stated the company may not survive the COVID pandemic yet retail investors have piled into its stock (see charts below from independent fintech company Robintrack).
  • Fidelity announced that 85% of its Q1 Buy order activity (video below), was fractional-share driven.