Are you hoping to invest in attractive companies that have really high share prices?
Taking advantage of trading fractional shares is a way for almost any stock investor to access stocks that trade at expensive prices per share.
In Canada, fractional shares can be bought through two self-directed brokerages:
Wealthsimple Trade and Interactive Brokers. After opening an account with either brokerage, you can choose a stock that is on the brokerage’s fractional trading approved list to trade for any dollar amount.
Fractional trading allows you to buy fractions of one share in companies that have high share prices.
We will cover how to buy fractional shares in Canada in more detail below.
Purchasing fractional shares involves several steps in order to be done properly.
- Determine which shares you would like to purchase on a fractional share basis
- Find a self-directed brokerage that matches your preferences
- Trade the stocks that you would like to buy on a fractional share basis
Before deciding to buy fractional shares, make sure that stocks are appropriate for your current risk tolerance.
Stocks are almost always considered at least medium risk at brokerages in Canada and are generally better as long-term investments rather than short-term holdings.
Buying every single stock on a fractional share basis is usually unnecessary. There is usually very little value in buying a third of a share of a stock that is worth a few dollars.
The value of fractional shares comes from the ability to purchase stocks that are trading at high prices.
Although a lot of stocks on Canadian and US exchanges trade for less than $100 a share, the shares of some companies can be as high as several thousand dollars per share.
As of 2022, one of the most expensive stocks (in terms of price per share) is Berkshire Hathaway, in particular, the company’s class A shares.
In March of 20222, class A stock traded at prices of more than US $539,000 for one share.
While Berkshire Hathaway is a clear outlier when it comes to share prices of publicly traded companies, some well-known companies still trade at high share prices. Some examples include:
- Lockheed Martin Corp: trading well over US $400 per share throughout 2022
- Blackrock Inc: at one point trading at over US $900 per share in early 2022
- Mastercard Inc: trading at over US $300 per share for most of 2022
- Tesla Inc: trading between US $200 and US $400 per share for most of 2022
With stocks that trade at several hundred dollars per share, it can be difficult to properly diversify portfolios, especially smaller ones.
Companies are aware of their share prices and generally try to keep the trading range of their shares within reasonable limits.
If a company’s share price rises rapidly and starts to trade at several hundred dollars per share (or even several thousand), it may consider a stock split.
A stock split increases the number of shares that a company has, in order to reduce the price of each individual share.
Existing shareholders are not impacted because the amount that they have invested in the company remains the same.
Example 1 – Stock Split
In this hypothetical example, a company’s shares are currently trading at $1,000 per share. In order to make trading more accessible for investors, the company may decide to do a 10-for-1 stock split. This means that the share price is divided by ten, and investors now have ten times more shares.
An investor with $1,000 invested in the company would own 1 share. After the 10-for-1 stock split, the investor would own 10 shares worth $100 each.
Stock splits can be done in different amounts – they can be 10-for-1, 100-for-1, or even 2-for-1.
Once you have made a list of the stocks that you would like to buy in your portfolio, take a look at the ones with the highest price per share.
If you are having trouble assigning these stocks a percentage weight in your portfolio (because of their high price), fractional shares may be a good idea.
Step 2: Finding an Appropriate Self Directed Brokerage
If you are looking to trade fractional shares, the only two self-directed brokerages in Canada that support this are Wealthsimple Trade and Interactive Brokers.
These brokerages target fairly different investors, so be sure to pick the one that best matches your current situation.
Wealthsimple is a very well-known, low-cost discount brokerage in Canada. The platform supports fractional share trading with a minimum trade of $1.
Some of the key features of the Basic membership Wealthsimple Trade include:
- The ability to instantly trade with up to $1,500 once your account is opened (no waiting time for funds to deposit)
- No account minimums
- No commissions
- No Fees on Canadian trades
The Plus membership adds additional features, including:
- The ability to instantly trade with up to $5,000 once your account is opened (no waiting time for funds to deposit)
- Unlimited USD stock trades
- No foreign exchange fees on US trades
Wealthsimple Trade currently offers over 500 stocks and ETFs for fractional trading. Some of the stocks include:
- Shopify (SHOP)
- Royal Bank of Canada (RY)
- Toronto Dominion Bank (TD)
- Canadian National Railway Co. (CNR)
- Amazon (AMZN)
- Google (GOOGL)
- Apple (APPL)
- Microsoft (MSFT)
- Facebook (FB)
- Netflix (NFLX)
- Tesla (TSLA)
- AirBnB (ABNB)
- Coinbase (COIN)
- Nvidia (NVDA)
Wealthsimple Trade is an excellent, well-rounded platform, which we strongly recommend for most investors, whether you are new to investing or a seasoned veteran.
Our in-depth review of the Wealthsimple Trade platform can shed more light on additional features and frequently asked questions.
A Wealthsimple trade account can be opened here, which also allows you to take advantage of a $25 sign-up bonus.
Interactive Brokers is the second Canadian brokerage to support fractional share trading.
The platform, unlike Wealthsimple Trade, is designed to appeal to more seasoned investors and traders, with a slightly more complex user interface.
If you are a seasoned investor or trader, Interactive Brokers offers you several sophisticated research tools and metrics to help guide your trading and investing.
Casual investors looking to trade fractional shares will likely prefer to do so through Wealthsimple Trade.
Interactive Brokers supports a wide variety of account types and has two different types of pricing for trades: tiered pricing and fixed pricing.
Interactive Brokers offers fractional share trading on eligible US and European stocks and ETFs.
Currently, in order to trade fractional shares, you will have to install the Build Version 979 (or newer) of Interactive Brokers’ TWS software. This will support most order types for fractional trading.
The list of eligible stocks that can be traded with fractional shares through Interactive Brokers is constantly changing.
Clients eligible for fractional share trading will have to enable it through the brokerage’s Client Portal.
The trading of fractional shares through Interactive Brokers comes with the same commission structure as regular stock trading on the platform.
The minimums for fractional share trading on Interactive Brokers are:
- When entering a share amount, a minimum of 0.0001 shares must be purchased
- When entering an order using a US dollar amount, a minimum of US $1 must be entered
Interactive Brokers does not currently allow fractional share trading for Canadian stocks or ETFs, although this could change at any time.
Once you have opened a self-directed brokerage account with either Wealthsimple Trade or Interactive Brokers and meet the eligibility requirements for each to trade fractional shares, the last step is to trade the actual shares.
Buying and selling fractional shares can be done by entering either a share amount or a dollar amount.
You no longer have to calculate how many shares of a particular company you can buy for the amount of money that you would like to invest.
Entering the amount of money that you would like to invest through fractional shares (i.e. $50) will show you what fraction of a company’s share you will be able to buy at current prices.
Entering a fraction of a company’s shares (i.e. 0.3 shares) will show you how much you will have to invest at current prices.
On Wealthsimple Trade, fractional share orders are traded by the brokerage twice per day. The execution price of your trade will be determined once the order is sent to the market (at that exact time).
This is because the brokerage consolidates multiple orders throughout the day in order to buy full shares when they trade.
Since fractional trade orders on Wealthsimple Trade are only executed twice a day, it removes some of the flexibility of regular trading. You may not be able to take advantage of movements in stock prices that can take place throughout the day.
Fractional orders that are submitted after 10:00 AM EST can be cancelled up to one hour before market close. Orders submitted after 3:00 PM EST can be cancelled up until 10:00 AM EST the next trading day.
Owning fractional shares in a company allows you to obtain a fraction of the company’s dividends. The dividend that you receive is proportional to your share ownership. Below is a hypothetical example:
You own 0.5 shares of company XYZ’s stock, which currently trades at $100 per share. Company XYZ pays a $1 dividend to investors per share. You will receive 50% of this dividend (or 0.5 times).
Which Stocks are Best to Buy?
Picking the right stocks to buy or to invest in depends not only on market conditions and underlying company fundamentals but also on your personal risk tolerance and investment goals.
Make sure to take a look through our stock section for a lot of ideas across different sectors or in specific situations.
Remember that stocks can be extremely different across sectors or geographies. A well-established, blue chip company’s stock is likely to be a less volatile investment than a small technology company’s recently-issued stock.
If you are looking to buy fractional shares in Canada, one of the best ways to do so is through a discount brokerage. Currently, only Wealthsimple Trade and Interactive Brokers offer fractional share trading to their clients.
Wealthsimple Trade is the best option for newer investors or for those that would like to trade fractional shares in Canadian companies.
For investment and trading professionals, Interactive Brokers offers a handful of excellent tools and resources that may be invaluable.
In order to avoid unnecessary mistakes before investing, make sure to read our comprehensive guide on how to start investing in Canada.