Karl
25th Mar 2025
Fractional shares are revolutionising the way we invest, offering an opportunity for people to buy portions of shares rather than whole ones. This is great news for those with a limited budget but still want to invest in some of the world’s most successful companies.
But how exactly do fractional shares work? Are they easy to buy and sell? And, crucially, what are the potential drawbacks?
In this guide, we’ll answer all these questions and more, providing you with a comprehensive understanding of fractional shares and how they can fit into your investment strategy.
A fractional share is exactly what it sounds like – it’s a piece of a share.
When a company issues shares, these shares are typically bought and sold as whole units. However, fractional shares allow investors to buy a fraction of a share rather than a full one.
Imagine you want to invest in a company’s stock, but its share price is £500. You may not have that much capital to invest, but with fractional shares, you can buy, for example, 0.1 or 0.5 of that share.
The beauty of fractional shares is that you can build a diversified portfolio even if your budget is small. For example, rather than buying one £500 share in a company, you can own a small part of multiple companies with just a small amount of capital.
Fractional shares work in much the same way as full shares, meaning they entitle the investor to dividends (if the company pays them) and provide the same voting rights as a full share. The key difference is that with fractional shares, you own less of the company.
The first step in buying fractional shares is finding an investment platform that supports them. Many mobile-based platforms, such as Freetrade, Moneybox, and Trading 212, now offer fractional share trading.
Once you’ve selected your platform, you can open an account, deposit funds, and then use the platform to purchase the fractional shares. Different platforms have different fee structures, so it’s worth comparing them before you dive in.
It’s important to note that some platforms may charge a premium for fractional share transactions, or may limit the number of companies whose shares are available for fractional purchases. So, always make sure to do your research and choose a platform that fits your needs.
| Platform Name | What We Like | What We Don’t Like | Minimum Deposit |
|---|---|---|---|
| InvestEngine | The best ETF platform that offers zero commissions on stocks and shares, fully managed protfolios, and up to £4000 cashback for new ISA accounts. | Only offers ETFs, no access to cryptocurrencies | £100 |
| XTB | Zero commission on stocks and shares, invest in ready-made portfolios for passive investing, access over 6000 assets | XTB does not provide access to cryptocurrencies | £1 |
| eToro | Social trading, copy trading, free demo account, access to stocks and crypto | No pension options, high fees | $10 |
When investing, your capital is at risk, and you may get back less than invested. Past performance doesn’t guarantee future results.
Fractional shares allow investors to gain exposure to high-priced shares without needing to invest a large amount of capital. This makes it easier to build a diverse portfolio on a budget.
One of the major benefits of fractional shares is that they make expensive stocks more accessible.
High-growth stocks, such as those from tech giants like Apple or Tesla, can cost hundreds or even thousands of pounds per share.
With fractional shares, you can still invest in these companies, even if you have only a limited amount of money to put in. This means investors no longer have to miss out on lucrative opportunities simply because they don’t have the funds to buy whole shares.
Another key advantage of fractional shares is the ability to diversify your portfolio more easily. By investing in fractional shares, you can spread your capital across different sectors and companies.
In investing, diversification is crucial because it helps reduce risk. Rather than putting all your money into a single company or sector, fractional shares let you balance your portfolio and potentially protect your investment against market downturns.
With fractional shares, you still receive dividends if the company pays them. Some platforms also offer automatic dividend reinvestment, which means your dividends can be reinvested into more shares. This process helps you take advantage of compound interest, which can significantly boost your returns over time.
While fractional shares offer several benefits, there are also a few drawbacks to consider:
As with any investment, fractional shares are subject to market fluctuations. Their value can rise and fall based on stock market conditions, and just because you’re investing in fractional shares doesn’t shield you from market volatility.
However, by diversifying your portfolio and holding long-term, you can help mitigate the effects of short-term market movements.
Not all platforms offer fractional shares, and some may restrict the number of companies that you can purchase fractional shares from. Even if the platform supports fractional shares, you might find that they only apply to certain stocks or sectors.
Additionally, the fees associated with fractional share transactions can sometimes be higher than those for purchasing whole shares, so it’s important to compare the costs before committing.
For UK investors looking to hold their fractional shares in an ISA (Individual Savings Account), there’s a significant hurdle.
According to HMRC, fractional shares cannot be held in an ISA. This is due to their interpretation of the ‘share’ definition, which excludes fractional shares from qualifying.
If tax efficiency is important to you, this could be a major disadvantage. However, there are hopes that this rule could be revisited in the future, so keep an eye out for any changes in the law.
If you’re considering buying fractional shares, it’s essential to do your homework before diving in. Here are a few tips for success:
Don’t concentrate all your investments in one stock. Make sure to diversify across sectors and industries to reduce risk.
Make sure you understand the companies you’re investing in. Research their financials, growth potential, and any risks before buying shares.
Investing with fractional shares is just like investing with whole shares, so it’s crucial to have a strategy in place.
Decide whether you’re investing for long-term growth or looking for short-term gains, and make sure your investments align with your goals.
Investing always carries risks, so make sure you understand your own risk tolerance. Only invest money you can afford to lose, and don’t put all your capital into fractional shares.
Are you investing for the first time? Take a look at our article that explains how to buy stocks in 5 simple steps
Are you keen to learn about investing? If so, why not sign up to the fortnightly MoneyMagpie Investing Newsletter? It’s free and you can unsubscribe at any time.
MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
Tax treatment of ISAs depends on your individual circumstances and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice.
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