Essential Reading for Small Investors | The Complete Investment Guide to Buying Fractional Shares: From Trading Rules to Practical Tips

Small investors want to enter the stock market but are limited by insufficient funds? Buying fractional shares is precisely the tailored solution for this type of investor. This article will provide a detailed introduction to the core knowledge of fractional share trading, operational procedures, cost structures, and practical buying and selling tips to help you get started quickly.

What are fractional shares? Why do they exist?

The traditional minimum trading unit for stocks is one lot (1000 shares), but investors can actually hold less than 1000 shares, which is called fractional shares, with a minimum trading unit of 1 share.

Fractional shares usually arise in the following situations:

• Orders that are not fully executed, resulting in residual amounts that are fractional shares
• Rapid stock price fluctuations, causing orders to be only partially filled
• When companies conduct stock dividends or rights issues, and the remaining less than one full share

Buying fractional shares is a specialized trading method for these scattered stocks, with each order not exceeding 999 shares. In simple terms, it involves buying and selling stock leftovers.

Fractional share trading hours and regulations explained

In the past, fractional shares could only be traded after hours, which was not sufficient for many small investors. Since October 26, 2020, investors can buy and sell fractional shares during regular trading hours, greatly increasing trading flexibility.

Trading hours schedule

During Market Hours

• Time: 9:00-13:30
• Order method: Electronic orders (broker trading platform)
• Matching method: First match at 9:10, then every minute via call auction
• Execution priority: Price priority, then submission time within the same price

After-Hours Trading

• Time: 13:40-14:30
• Order method: Electronic or manual phone orders
• Matching method: One call auction at 14:30
• Execution priority: Price priority, then random order for same price

Important trading regulations

Investors should note that during market hours, orders can only be placed electronically, manual orders are not accepted. If an order is not filled during market hours, it will not automatically carry over to after-hours trading and must be resubmitted. Unfilled orders during after-hours trading will be automatically canceled and will not carry over to the next trading day.

Additionally, buying fractional shares allows for dividend and dividend income, and holders as shareholders can receive corresponding dividends, though the amounts are relatively small.

How to buy fractional shares? Account opening and fee details

Account opening process

The channels for buying and selling fractional shares are the same as for full shares, with no special account required. Simply switch to the “Fractional Trading” mode on the broker app’s order page; the input unit for purchase quantity will change from “lots” to a number between 0-999 shares.

Fee calculation

The fee for buying fractional shares is the same as for full shares, calculated as 0.1425% of the buy or sell amount. However, different brokers set minimum fee standards and offer discounts for electronic orders.

For example, purchasing 200 shares of TSMC (2330.TW) with a closing price of NT$1065:

• Basic fee: 200 × 1065 × 0.1425% = NT$303.53
• With a 50% discount: NT$303.53 × 50% = NT$151.77

Mainstream broker comparison

Difficulties in executing fractional shares? These tips help you solve them

Although fractional share trading is becoming more convenient, the trading volume for less popular stocks remains low, and investors may not always be able to execute trades smoothly. The following strategies can effectively improve the chances of successful transactions:

Strategy 1: Combining holdings for sale

If the order is not filled during the day, you can adopt a “convert fractional to whole” approach. For example, with Xinjing (1582.TW), if you hold 700 shares but cannot sell them, you can place another order after hours or the next day, or buy an additional 300 shares to make a full lot (1 lot = 1000 shares), then sell the full lot through more active whole share trading.

Strategy 2: Using price placement techniques

Since after-hours trading only involves one call auction, if investors are eager to buy, they can try placing an order at the limit-up price. According to the maximum transaction principle, the probability of successful purchase is highest. Conversely, if eager to sell, placing an order at the limit-down price maximizes the chance of execution.

Advantages and disadvantages of buying fractional shares

Advantages

Low capital threshold: Compared to full shares which often require several thousand NT dollars, fractional shares significantly lower the entry barrier, making it easier for small investors to participate in the stock market. Investors can keep sufficient liquidity for daily expenses or other investments.

Low cost for testing waters: Buying fractional shares is suitable as a starting point for regular investment plans, allowing familiarization with the stock market without large capital outlays.

Disadvantages

Lower liquidity: The order volume for fractional shares is much smaller than for full shares, leading to longer matching times and potentially longer waiting periods for transactions.

High fee pressure: Although the fee rate is the same, the existence of a minimum fee (usually NT$20) means that small transactions have a relatively high proportion of fees. It is recommended to buy at least NT$10,000 worth per transaction; otherwise, the fee may outweigh the benefits, making it less cost-effective.

Limited buy/sell process: Fractional investors can only place sell orders, not buy orders; sales must be completed in one go, with no partial sales. Additionally, converting fractional shares into full shares is time-limited; if expired, the order automatically becomes invalid.

Because fractional shares are generated randomly, broker inventories may not always have enough stock, and investors might not be able to buy the desired amount.

Alternative for small investors: Contract for Difference (CFD) trading

If you are concerned about high fees and low liquidity in fractional share trading, CFD offers another option.

CFD is a derivative agreement between two parties, allowing investors to gain exposure to the market with only a small margin deposit, without holding physical stocks, focusing solely on price movements. Most brokers do not charge additional commissions, only spread costs, making costs transparent and avoiding liquidity issues.

Example comparison

Buying 5 shares of Google at $400 per share:

• Traditional fractional share purchase: 400 × 5 = $2000
• CFD trading (with 5% margin): 400 × 5 × 5% = $100

CFD is more suitable for short-term investors, requiring daily settlement, with overnight interest for holding positions overnight. Fractional share trading is better suited for long-term investment strategies.

Summary

With technological advances, buying fractional shares has become one of the most popular investment methods for small investors in Taiwan. Compared to traditional full share trading, fractional shares require less capital, allow flexible small-amount purchases, and offer diverse and convenient trading channels.

However, to succeed in the fractional share market, investors need to have sufficient knowledge:

• Understand their own risk tolerance and choose appropriate strategies
• Master basic investment analysis methods and market skills
• Maintain a rational mindset, avoiding blind following and impulsive trading

Whether choosing fractional share trading or alternative tools like CFDs, persistent learning and disciplined execution are key to long-term profits.