What is a fractional share?
A fractional share is a piece of one whole share of a stock. Trading in fractional shares is a great way to invest in companies which might otherwise be unattainable due to high share prices. Buying fractional shares means you can buy a piece of a share. As with any investment, your capital is at risk.
How do I buy a US fractional share?
You can specify the GBP amount you want, not the number of shares. Whereas before you would have received an amount of whole shares and any surplus cash would be returned to your Freetrade ‘available to invest’ balance, now the cash amount that you reserve for a purchase will be used and you’ll receive a fractional amount of shares relative to that amount instead.
For example, if you wanted to buy £100 in a US stock, we’d execute an order for £100, and purchase a fractional amount of shares as close to that amount as possible.
Can I sell whole US shares?
When selling you specify the number of shares you wish to sell, up to the entirety of your holding. Therefore if you hold more than one share you will be able to sell in whole share amounts.
Why did I get more or less fractional shares than the cash amount I put in?
When you execute a trade, there will be a small amount of time between the estimate that you receive, the trade being executed in the market and the currency being exchanged to USD. This accounts for differences in the number of shares you may receive. Consider a scenario where you attempt to buy £50 worth of shares. As the trade itself is executed a briefly before the FX conversion takes place, there's scope for a slight movement in the cost of your trade - positively or negatively dependent on which way the FX rate has fluctuated.
In short, we receive confirmation that the trade has executed and, based on the price achieved, convert the currency. Because there’s a brief period of time between the two, the FX rate moves slightly, resulting in a difference.
If we were to do it the other way and convert the currency first and execute the trade second; if the trade failed to be filled for any reason we’d be left with some dollars we’d need to convert back to sterling, which would result in money lost.
Any residual cash not used towards your purchase will be returned to your available to invest balance. If you choose to use all of your available cash balance to purchase fractional shares, there is a small chance you may go overdrawn due to FX fluctuations, although we have buffers in place to reduce the risk of this happening.
Is there a minimum order limit?
Yes, your order value for placing a purchase must be a minimum of GBP £2 for both US and UK stocks. You’ll also be unable to sell a holding with a GBP value of less than £2 or where a sale will leave you with a holding in an investment of less than £2. In these instances, you will need to sell the entire holding in that investment.
Will I receive fractional dividend payment?
You’ll be eligible to receive a fractional dividend payment rounded down to the nearest 1p, proportionate to the fractional value of the share you hold.
Where can I see the FX rate?
You’ll be able to see the FX rate applied to your order on your contract note now. You’ll also be able to see the price you achieved for your order in USD too.
What’s the difference between the Base FX rate and the FX rate on my contract note?
The Base FX rate is the rate that Freetrade pays on your order. The FX rate is the Base FX rate + 45bps.
Bps is an abbreviation for Basis Points. This is a unit of measurement and each one is equal to 0.01% (1/100th of a percent). Freetrade calculates the FX fee on your order as 45bps of the Base FX rate achieved.
Why am I being charged an FX fee?
US stock orders executed previously via Freetrade were subject to an FX fee. However, this was embedded in the GBP price charged by the market maker and so it did not show on your contract note.
How is the average price per share calculated for fractional shares?
The average price per share is calculated on a whole share basis, so even if you owned half a share, you would see the average price per share proportionate to 1 whole share.
How does fractional shares work for Gain/Loss?
Gain/Loss is based on the value amount you own, your gain/loss will therefore not be treated any differently if you own fractional shares.