The stock market investing world has become massive. Equity markets boast big-ticket items that have made millionaires among investors over the years.
If you own shares of a massive tech stock like Shopify or Amazon, the good news is that these high-priced stocks will likely keep soaring to new heights.
If you want to own them, you would have typically had to resort to a massive cash outlay to become a shareholder.
However, that might be a thing of the past because you can now own fractional shares in these big companies. My guide to Wealthsimple Trade fractional shares will guide you about what fractional shares are and how the world’s first commission-free trading platform can let you trade fractional shares in Canada.
What Is Wealthsimple Trade?
Wealthsimple Trade is Canada’s first commission-free trading platform, and it is one of the products offered by Wealthsimple.
The Canadian fintech company began as an online investment management service back in 2014, offering Robo Advisor services for Canadians seeking hands-off investment opportunities with decent shareholder returns.
Launched in March 2019, Wealthsimple Trade began offering Canadian and US-based investors the opportunity to trade stocks and Exchange-Traded Funds (ETFs) with zero commissions.
Wealthsimple Trade is a reliable trading platform that is a member of the Canadian Investor Protection Fund (CIPF). It means that the money held in your Wealthsimple Trade account is protected against insolvency for up to $1 million.
Wealthsimple is one of the top trading platforms in Canada because it has constantly been improving its offerings. One of its most significant new offerings is its support for fractional share trading.
Fractional shares, as the name of the term suggests, refer to buying and selling a portion of one share in a company’s stock instead of trading an entire share.
You can own fractional shares through dividend-reinvestment plans (DRIPs) that automatically invest the dividends you earn from owning shares of a stock to buy more shares for you.
You can also own fractional shares due to stock splits. With the introduction of Wealthsimple Trade Fractional Shares, you can actually trade fractional shares.
Take Google stock (NASDAQ:GOOGL) stock, for example. The stock is trading for close to $3,000 per share at writing. The stock has provided over 260% growth through capital gains in the last five years. It is likely that Google stock will continue soaring to greater heights in the coming decade.
Unfortunately, such a high share price puts Google stock out of reach for many retail investors. Fractional share investing comes in to resolve this problem for you by allowing you to invest as little as $1 in Google stock to own a fraction of its shares.
You can gradually build up your position in the company by buying more shares as your investment capital grows while enjoying shareholder returns on the fractional shares you already own.
Fractional shares are typically created after publicly-traded companies engage in stock splits or merge with other companies. Suppose that you own an odd number of shares in a company, and it engages in a stock split.
That could end up with an individual share being split into two fractions. When two companies merge, it is possible for them to combine stocks with each other. Depending on the ratio the two companies use, they can split individual shares into fractions.
Many companies also intentionally offer fractional shares because they want to give investors easier access to investing in their company. Fractional shares allow investors with limited funds to start investing.
Investors who want to gain exposure to expensive stocks at a fraction of the cost do have alternatives to fractional trading. For instance, you can spread limited investment capital across a group of expensive stocks through an ETF.
You get low-cost exposure to a basket of equity securities that would be otherwise too expensive to own individually. However, fractional trading offers you a lot more control over how you allocate your money.
An ETF that invests in all the top tech companies in Canada might give you a piece of Shopify stock, but it will also include several other companies that you might not be interested in owning.
Your investment returns will be based on the performance of the group of stocks as a whole rather than that of an individual stock held by the ETF.
Suppose that you invest in a tech-focused ETF that invests in 20 tech companies, including the stock you want to own. Let’s further suppose that the stock you wanted to own through the ETF outperforms the rest of its peers, but most of the other tech stocks underperform.
In that case, your investment returns will be far less than what you might have gotten by only owning fractional shares of the company you wanted.
Wealthsimple Trade rolled out its Fractional Shares trading feature in July 2021 by offering only 14 stocks. Four of them were Canadian publicly-traded companies, and ten of them were US-listed equity securities.
Wealthsimple Trade now allows you to invest in fractional shares of hundreds of stocks, including Shopify, Royal Bank of Canada, Toronto-Dominion Bank, Canadian National Railway Co., Canada Goose Holdings, and much more.
Depending on how expensive a stock is, you can choose to invest in fractional shares to gain exposure to it and enjoy investment returns through the performance of the company based on the portion of its shares that you own.
This section of my guide to Wealthsimple Trade Fractional Shares will cover how you can buy partial shares on Wealthsimple.
- To begin trading fractional shares through Wealthsimple Trade, you need to create an account on the platform. It only takes a few minutes to complete the process and you can deposit up to $250 immediately to begin trading. Deposits higher than $250 are available for use within three business days. Creating a Wealthsimple Premium account can let you deposit and begin trading with $1,000 immediately.
- Once you have an account set up, you can place a trade using the mobile app or a desktop interface. Search for the stock you are interested in, and it will show up on the platform. Since you want to buy partial shares of the stock, you need to look for Canadian stocks that support fractional share trading. Fortunately, you have over 2,000 supported stocks to choose from for fractional share trading through Wealthsimple Trade.
- Select the stock you want to trade and a notification will pop up, showing you different order types, including market buy, limit buy, stop-limit buy, and fractional buy. Select “fractional buy.” If you are buying fractional shares for the first time through the platform, it will show you a dialogue box that explains what it means.
- Enter the amount you want to invest in the stock. For instance, you want to invest in Shopify stock and have $100 to spend. At writing, the stock is trading for almost $1,800. You cannot own a complete share in Shopify stock with $100, but selecting this option will mean that you can now own $100 worth of Shopify stock.
- You will see how many shares of the stock you are buying when you confirm the order. In the case of the example above, you will be buying 1/18th of a share in Shopify stock.
You can also sell a partial share on Wealthsimple Trade by entering the number of shares you want to sell. Wealthsimple Trade fulfills one fractional share order a day.
Suppose that you own fractional shares through Wealthsimple Trade, and you decide that you want to switch to another brokerage. It is possible to move complete shares that you might own through Wealthsimple Trade.
However, Wealthsimple Trade does not allow you to transfer fractional shares held in your account to another brokerage platform.
Stock market investment returns are not all about a stock’s performance on the stock market alone. Dividend investing has become an increasingly popular way to grow your wealth. Dividend-paying companies share their profits with investors by distributing the profits as shareholder dividends.
Owning fractional shares of a dividend stock entitles you to get shareholder dividends. Companies pay their investors their shareholder dividends based on the number of shares each investor owns.
It means that when a stock you own partial shares of declares and pays dividends, you will receive shareholder dividends based on the fraction of shares that you own.
Suppose that you bought 0.5 shares of a dividend stock that paid $3 in shareholder dividends per share. It means that you will get shareholder dividends for 0.5 of a share, i.e. $1.5. Similarly, an investor who owns 10 shares in the same company will receive $30 in shareholder dividends.
The introduction of fractional share trading on Wealthsimple Trade now makes it possible for a larger number of investors to gain easier access to investing in high-priced stocks trading in Canada and elsewhere.
Before Wealthsimple Trade introduced fractional shares, you could only own fractional shares through Interactive Brokers – but the brokerage is more suitable for active traders, not average investors. Check out my complete Wealthsimple Trade review to learn more about the platform.
You can start using Wealthsimple Trade to buy fractional shares and get a $50 signup bonus by clicking here.