Office towers in Toronto, on June 27, 2018.Tijana Martin/The Canadian Press
Things you can do with $10:
-Buy a couple of lattes;
-Add it to a savings account and earn maybe 30 cents of interest yearly at current rates;
-Invest it and own a small slice of Apple Inc. AAPL-Q, creator of devices the world craves, the largest name in the S&P 500 index and a stock that has increased a cumulative 670 per cent in the past 10 years.
Offered by a small but growing number of brokers, fractional stock trading lets you buy shares with pretty much any amount of money you have on hand. With $10, you would own roughly 3.1 per cent of an Apple share based on the recent price of around $320.
Advisers, fund companies and others in the investing establishment may tell you this sounds like a bad thing because it opens the door for people to invest frivolously. They’re right about that, but a greater good will be served. Fractional trading is the next stage in democratizing stock market investing, an add-on to zero-commission trading and, further back, the advent of discount brokers in the 1980s and online trading in the 1990s.
Fractional shares have been available for years in the U.S. market, where brokers compete harder and deliver better innovations faster.
In Canada, investing upstart Wealthsimple introduced fractional trading back in 2021 and Interactive Brokers did likewise in 2023. But the mainstreaming of fractional trading didn’t begin until August, when TD Direct Investing and the TD Easy Trade app began offering this service. Toronto-Dominion Bank is to digital investing as Jupiter is to the planets. If TD decides to offer fractional shares, it’s a thing.
With a broker offering fractional shares, you have the option of indicating the number of shares you want to buy or the dollar amount you want to invest. With $50, you could buy two-thirds of a $75 stock, half of a $100 stock and so on. You put your money to work when you choose, not when you’ve accumulated enough to buy one or more shares.
Mutual funds were the original investing democratizer in allowing people to put any amount of money to work, subject to starting minimums of $100 and up. Nobody says, “I’ll have 200 units of the ‘XYZ Canadian Equity Fund.’” Instead, they invest $400, $657 or whatever they have on hand.
Fractional stock trading brings this same accessibility to stocks and exchange-traded funds, which are a low-cost version of the mutual fund that trades on the stock market. Wealthsimple charges zero commissions for trading of all stocks and ETFs, fractional or otherwise, while TD charges $1.99 per fractional trade compared with $9.99 for trades of one or more shares (2.5 shares, for example), and Interactive Brokers has a $1 minimum commission.
This brings us to the downsides of fractional trading via a digital investing app. For one thing, investors will have to weigh the value of paying even small commissions to buy fractional shares. And then there’s the question of whether fractional trading enables people to invest haphazardly. Will they jump on trends of the moment such as cannabis, meme or AI stocks, rather than prudently diversifying?
Whatever tools you give investors, some will take on too much risk and learn from the experience. As online investing took off in the late 1990s, discount brokers were overwhelmed with investor demand to trade tech stocks that crashed and burned. Today, no one questions DIY investing. Even people with advisers commonly have their own trading accounts.
Brokers offering fractional trading say it will help people get comfortable with investing, even if they don’t have a lot of money to get going. But the real benefit of fractional trading is that it turns investing into e-commerce, which means easy and accessible.
On a whim, you can buy a slice of Apple or, much better, a diversified ETF covering a major stock or bond index. You could also set up regular biweekly or monthly contributions that benefit from fractional purchases.
Some in the investing industry may be aghast at the idea of people riding on buses buying ETFs or stocks in bite-size increments. But it’s all part of stock market investing’s evolution into something everyone can do if they want. If not, there’s always mutual funds.
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