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What are fractional shares?

A fractional share is exactly what it sounds like — a portion of a full share of stock or an ETF.

Instead of needing the full amount to purchase a whole share (which can sometimes cost hundreds or even thousands of pounds), fractional shares allow you to invest an amount that fits your budget, whether that’s £10, £100, or more.
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• For example, if a single share of a company costs £200 and you invest £20, you would own 0.1 of a share.
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Fractional investing is made possible by modern brokerage platforms, and it’s especially popular among new investors or those looking to spread small amounts across many companies or funds.

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Understanding types of fractional shares

Not all fractional shares are created equally. Here's a breakdown of the main types you might come across:
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• Voluntary fractional shares: These are intentionally created when investors choose to buy a specific monetary value rather than a number of whole shares. Most common in retail investing today.
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• Involuntary fractional shares: These occur due to events like stock splits, dividend reinvestment plans (DRIPs), or mergers and acquisitions.
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• Fractional shares via ETFs and funds: Some exchange-traded funds (ETFs) and index funds inherently involve fractional share ownership behind the scenes, allowing for diversified exposure even with small investments.
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Understanding the source of your fractional shares can influence how they’re treated in terms of ownership, voting rights, and dividend payouts.

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How does trading fractional shares work?

When you trade fractional shares, you're typically placing an order based on a cash amount, not the number of shares. 

Your investment platform calculates how much of a share that amount will buy based on the current market price.

A few important things to note for UK investors:
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• Execution timing: Some providers batch fractional share orders and execute them at specific times during the day, rather than instantly.
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• Ownership model: In most cases, you don’t directly own the share certificate. Instead, your platform holds it on your behalf, often via a nominee account.
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• Fees and spreads: Be aware of how fees and bid-ask spreads may affect your investment, especially with smaller sums.

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Example of fractional shares

Let’s say you’re interested in investing in a company or ETF and shares are trading at £500 each. 

Rather than saving up to buy a whole share, you decide to invest £50. You now own 0.10 of a share. If the share price increases by 10% to £550, your investment would be worth £55, a £5 gain, reflecting the same percentage growth.

This ability to invest smaller amounts can be particularly helpful when building a diversified portfolio across different sectors and asset types.

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Fractional shares and dividends

If the fractional shares you own pay a dividend, you’re typically entitled to a proportional dividend. For example, if a company pays a £2 dividend per share and you own 0.5 of a share, you would receive £1 in dividends. However, how and when these dividends are distributed can vary by provider. 

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Pros & cons of fractional shares

Fractional shares advantages:
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• Lower barrier to entry: Start investing with small amounts of money.
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• Diversification: Spread your funds across more assets, reducing risk.
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• Accessibility: Invest in high-priced shares that would otherwise be out of reach.

Fractional shares disadvantages:
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• Limited voting rights: Some platforms do not extend shareholder voting rights to fractional holders.
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• Trading limitations: Selling may be restricted or delayed depending on the provider, and you may not receive the price you expect.
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• Platform dependency: You typically cannot transfer fractional shares between platforms or brokers.

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Are fractional shares safe and regulated?

Yes, when offered by FCA-regulated platforms, fractional shares are considered a safe and legitimate way to invest. However, investors should understand that the underlying risks of market investing remain the same — your investment value can go up or down.

As with any investment, due diligence is key. Make sure to check whether your provider is covered under the Financial Services Compensation Scheme (FSCS) and understand how your assets are held.

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Fractional shares summary

Fractional shares have opened the door for more people to begin investing, regardless of how much capital they have to start with. 

By making it possible to own a piece of high-priced stocks or ETFs and diversify with less money, they represent a meaningful shift in how modern portfolios are built, especially for new or budget-conscious investors.

That said, it's important to understand the mechanics, limitations, and regulatory environment that surround fractional investing. While they offer flexibility, they're not a guarantee of returns and carry the same risks as full-share investing.

In recent years, the rise of financial technology, or fintech, has dramatically reshaped how people manage, save, and invest their money. From user-friendly mobile apps to AI-driven investment platforms, technology is removing many of the traditional barriers to entry in the world of finance.

In the next guide, we’ll explore how fintech is reshaping the future of investing, and what it means for everyday investors.

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When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than your original investment. Chip does not offer financial advice and this should not be considered as a personal recommendation. Diversifying means spreading your investments across different sectors, countries and asset classes.

Direct investment into individual bonds is not available via the Chip platform. Chip offers investment funds that invest in different assets as a collective investment.