What is a 'Fractional Share'?

A fractional share is a share of equity that is less than one full share. Fractional shares may be the result of a stock splits, dividend reinvestment plans (DRIPs), or similar corporate actions. Typically, fractional shares cannot be acquired from the market, and while they have value to the investor, they can be difficult to sell.

BREAKING DOWN 'Fractional Share'

The only way to sell fractional shares is through a major brokerage firm who can pair them with other partial shares until a whole share can be attained. If the selling stock does not have a high demand in the market place, selling the fractional shares might take longer than expected.

Shares Resulting from a Stock Split

Fractional shares can be created in a situation where a company has a 3-for-2 stock split. Suppose you have three shares of XYZ Corporation, and XYZ has a 3-for-2 stock split. In this case, you should get an extra 1 1/2 shares, which would be 4 1/2 shares in total. Typically, a half a share cannot be bought on the stock market; however, in this case, it might be possible to obtain a fractional share. Most companies tend to round up to the nearest whole number of shares when fractional shares occur. In the above example, XYZ Corporation could opt to round up the 1/2 share to leave five shares.

Shares Resulting from a Merger or Acquisition

Another scenario where fractional shares can be acquired is from a merger or acquisition between two companies. In this scenario, the combined new common stock shares are often calculated using a predetermined ratio. Shareholders usually obtain either a fractional share of the new common stock or cash in lieu of the fractional shares.

Mutual Fund Fractional Shares

Mutual fund investors often reinvest both dividends and capital gains distributions. This often leaves the investor with fractional mutual fund shares. Unlike stocks that trade instantaneously on an exchange, mutual fund fractional shares are much easier to sell. Since mutual funds are often reinvested and sold at the end of the market day, brokerage firms find it easy to compile fractional shares.

Partial or Odd-Lot Bonds

It is much less common that an investor will have an odd number of bonds. Individual bonds are usually sold in increments, such as by 10s, 20s, 25s, 50s or 100s. Selling 11 bonds on the marketplace will often lead to a sell order not being filled or inaccurate pricing. It is often difficult to buy bonds that are not sold in increments. However, this might occur if an individual inherits bonds. If an investor were to inherit half of 25 bonds, that would be an odd lot of 12 1/2 bonds. If the newly inherited bonds are to be sold, they would be required to be packaged in a lot of 10. The remaining 2 1/2 bonds would need to be packaged with other partial bonds to be sold.

RELATED TERMS
  1. Dividend Reinvestment Plan - DRIP

    A dividend reinvestment plan (DRIP) is an arrangement that allows ...
  2. Bond ETF

    Bond ETFs are very much like bond mutual funds in that they hold ...
  3. Gwei (Ethereum)

    Gwei is the one of the commonly used denominations of ether (ETH), ...
  4. Bond Quote

    A bond quote is the price at which a bond is trading, typically ...
  5. Discount Bond

    A discount bond is a bond that is issued for less than its par ...
  6. Total Bond Fund

    A total bond fund is a mutual fund or exchange-traded fund that ...
Related Articles
  1. Personal Finance

    What is Fractional Reserve Banking?

    Fractional reserve banking is the banking system most countries use today.
  2. Managing Wealth

    How Exactly Does Fractional Jet Ownership Work?

    An overview of what fractional jet ownership is and how it works.
  3. Investing

    Stock Splits: A Closer Look At Its Effects

    Most trades, including short sales and options, aren't materially affected by a stock split. Still, it's important for shareholders to understand how these events impact various aspects of investing. ...
  4. Investing

    5 Ways to Lose Money With a Dividend Reinvestment Plan

    Enrolling in a dividend reinvestment plan can backfire if you're not using it wisely, costing you money in the process.
  5. 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.
  6. Investing

    Pros & Cons of Bond Funds vs. Bond ETFs

    Understanding the pros and cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.
  7. Investing

    Understanding Stock Prices and Values

    Find out why a stock with a six-figure share price can still be a good value.
  8. Investing

    Six biggest bond risks

    Bonds can be a great tool to generate income, but investors need to be aware of the pitfalls and risks of holding corporate and/or government securities.
RELATED FAQS
  1. What's the smallest number of shares of stock that I can buy?

    Many people would say the smallest number of shares an investor can purchase is one, but the real answer is not as straightforward. ... Read Answer >>
  2. What's the smallest number of shares I can buy?

    When buying stocks, many would say the smallest number of shares that an investor can purchase is one, but the real answer ... Read Answer >>
Trading Center