Toronto-Dominion Bank’s TD-T online investing platform will launch fractional trading on Wednesday, becoming one of a handful of trading platforms in Canada that allow users to purchase partial shares of stocks that would otherwise be restrictively expensive.
Fractional trading allows an investor to purchase small portions of stocks that cost hundreds or thousands of dollars, so they can add a company to their portfolio without having to shell out the full amount for a single share.
“Investors can start small, they can more easily diversify across different stocks, and it really does allow individuals to get hands-on experience with investing without having the need to have deep pockets any more,” said Tony Ierullo, vice-president of TD Direct Investing.
Mr. Ierullo and other investment advisers say fractional trading is a great way to level the playing field for new investors and day traders who want to pick their own stocks. He added fractional shares also benefit people who want to purchase expensive exchange-traded funds, allowing them to purchase a couple hundred dollars in equity every month, rather than having to save for an ETF that might cost $500.
Wealthsimple Inc. was the first to offer fractional trading in Canada back in 2021. Interactive Brokers also began offering it in 2023.
However, Mr. Ierullo said TD’s offering is unique in that it’ll allow fractional stocks to be bought and sold in real time – a feature that came about from customer feedback. This differs from Wealthsimple, which makes fractional trades at different points throughout the day in batches. (Wealthsimple director of trading Constance Lo said they are working on introducing real-time trades).
Real-time trading could be an important feature for people who more aggressively buy and sell stocks, especially in instances such as Monday’s widespread sell-off in the United States, when the S&P 500 dropped by 3 per cent throughout the day.
TD Direct Investing will charge $1.99 for each trade made for less than one share of a stock. Fractional trades of more than one stock will be charged at the company’s regular rate of $9.99 per trade. That compares with all stock and ETF trades being free of charge on Wealthsimple.
TD will begin by offering roughly 2,000 stocks and ETFs in Canada and the United States to be traded in fractional shares, and plans to increase that number to 4,000. Wealthsimple currently offers roughly 10,000.
Richard Coffin, a portfolio manager at Watson Di Primio Steel (WDS) Investment Management who also runs a financial literacy YouTube channel called The Money Bagel, said partial shares are a relatively niche product.
“From people I’ve spoken to at events, I think fractional shares are more of a ‘take it or leave it’ feature, where people appreciate it, but I don’t know if it’s enough to be a game changer,” Mr. Coffin said.
Online features such as fractional trading are already commonplace in the United States, where a less consolidated banking environment has led to more competition and innovation, said Benjamin Felix, a portfolio manager and head of research at PWL Capital in Ottawa.
But Mr. Felix said he wasn’t sure whether fractional trading was always the best route for new investors. He pointed to one journal article in the Review of Financial Studies, which found that while fractional trading did remove barriers to high-priced stocks in the United States, there was evidence that it surged the number of small trades that can “fuel meme-stock-like trading frenzies and bubbles in high-priced stocks.”