A:

Many people would say the smallest number of shares that an investor can purchase is one, but the real answer is not as straightforward. 

While there is no minimum order limit on the purchase of a publicly traded company's stock, it's advisable to buy blocks of stock with a minimum value of $500 to $1,000. This is because no matter what online or offline service an investor uses to purchase stock, there are brokerage fees and commissions on the trade.

When purchasing stock in the open market, an investor should open a trading or brokerage account with a leading financial institution such as eTrade, Charles Schwab or Ameritrade. Once the investor opens a trading account, it's up to him how many stocks he wants to purchase at any one time. Before making any purchase decisions, an investor should do ample research on the various types of equity securities that are offered. Once an investor identifies a stock worth purchasing, he should execute an online trade by using his brokerage account. There are two types of trades that can be made in this scenario: a market order and a limit order.

If the investor makes a market order, he chooses to purchase the stock at the current market price. If the investor makes a limit order, he chooses to wait to purchase the stock until the price falls to a specific limit. While purchasing a single share isn't advisable, if an investor would like to purchase one share, he should try to place a limit order so he has a greater chance of capital gains that offset the brokerage fees.

However, the answer to this question is complicated further by something known as fractional shares. A fractional share is a share of equity that is less than one full share and usually is the result of a stock splitdividend reinvestment plan (DRIP) or similar corporate action.

A DRIP is a plan in which a dividend-offering corporation or brokerage firm allows investors to use dividend payouts to purchase more of the same shares. As this amount "drips" back into the purchase of more shares, it is not limited to whole shares. Thus, you are not restricted to buying a minimum of one share, and the corporation or brokerage keeps accurate records of ownership percentages. For example, if you were enrolled into the DRIP of Cory's Tequila Corporation (CTC) and you owned one share of CTC - which pays a dividend of $2 per share and is trading at $40 - the $2 dividend would be automatically used to purchase 0.05 ($2/$40) shares of CTC. The reason DRIPs are so popular is that most of them don't have commissions or brokerage fees, so it is cheaper for investors to increase their holdings and use their dividend payouts without having to pay extra fees. (For related reading, check out The Perks of Dividend Reinvestment Plans.)

Fractional shares are also being utilized by investment companies and apps such as Betterment, Stash and Stockpile. By allowing people to trade fractional shares, such companies provide investors, many of them beginners, with access to stocks they may otherwise not have been able to afford to trade. Due to the growing popularity of such investment platforms, fractional shares are also likely to increase in popularity. 

RELATED FAQS
  1. What is a DRIP?

    "DRIP" is an acronym for dividend reinvestment plan, but the word also describes the way the plan works as investments grow ... Read Answer >>
  2. What is the cost of a share purchase?

    Find out how the total price of a share purchase is dictated by the current stock price and the fees the brokerage company ... Read Answer >>
Related Articles
  1. Investing

    The Perks Of Dividend Reinvestment Plans

    Dividend Reinvestment Plans (DRIPs) offer shareholders a way to purchase additional shares in top companies without the commissions. Learn more on the characteristics of DRIPs and how it affects ...
  2. Investing

    How Dividend Reinvestment Grows Your Money Faster

    Dividend reinvestment is a smart strategy for growing your investments faster over the long term, but it’s not a get-rich-quick proposition.
  3. Investing

    Got Dividends? Here's How to Reinvest Them

    Reinvesting dividends is a good idea if you intend to hold your shares for the long term.
  4. Managing Wealth

    Cost Basis 101: How To Correctly Understand It

    Understanding how to calculate cost basis is critical for tracking the gains or losses of an investment, and what the tax consequences on it are.
  5. Investing

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  6. Investing

    Top DRIPs and Picks for the Next 25 Years

    Instead of trying to time the market or worry about interim ups and downs, some of the most successful investors focus on accumulating long-term investment positions for years or decades to come. ...
  7. IPF - Broker

    The Complete Guide to Choosing an Online Stock Broker

    Online stock brokers have made high-risk, high-reward investing available to the broader public.
  8. Retirement

    The Rise of 401(k) Brokerage Accounts

    Many 401(k) plans now allow participants to trade stocks and bonds by offering brokerage accounts inside the tax-deferred plan. Good idea or too risky?
  9. Investing

    How Dividends Affect Stock Prices

    Find out how dividends affect the underlying stock's price, the role of market psychology, and how to predict price changes after dividend declarations.
  10. Trading

    Basics of the Mechanics Behind Electronic Trading

    Once associated with shouting traders and wild hand gestures, now statistics and programmers rule.
RELATED TERMS
  1. Treasury DRIP

    A Treasury DRIP is a dividend reinvestment plan that uses dividends ...
  2. Drip Pricing

    Drip pricing is a pricing technique where only part of an item's ...
  3. Firm Order

    A firm order may be referred to as an order for a trade from ...
  4. Brokerage Company

    A brokerage company's main responsibility is to be an intermediary ...
  5. Below the Market

    Below the market can refer to any type of purchase or investment ...
  6. Reinvestment

    Reinvestment is using dividends, interest and any other form ...
Trading Center