Have you seen the price of NVIDIA lately? The artificial intelligence giant has finally cracked the $1000 share price point, and investors who purchased during the tech slowdown in 2022 have been handsomely rewarded for their patience. But if you’re a new investor looking to get started in the market, the share price of stocks like NVIDIA, COST, or ETFs like SPY and QQQ makes it seem like diversification with limited capital is impossible.
Not so fast, my friend! Thanks to Webull’s fractional share program, you don’t need massive capital to buy the top equities and ETFs in the stock market. Fractional shares are incremental pieces of full shares the broker offers clients. You can purchase as little as $5 worth of stock, even if the full share price is four-digit. In this breakdown, you’ll learn how to buy fractional shares on Webull, the limitations of these types of trades, and the benefits of diversification through incremental fractional share purchases.
Quick Look at How to Buy Fractional Shares on Webull:
- 1: Create a Webull Account
- 2: Fund Your Account
- 3. Navigate the Webull Trading Platform
How to Buy Fractional Shares on Webull
A fractional share portfolio can be a great way to add diversification without much capital, but you’ll need to open an account and learn the Webull broker platform. Webull has many features and benefits for advanced traders, but it's also a quality broker for new investors looking to learn how the market functions. Here are a few short steps to get started.
Create a Webull Account
To get started, you’ll first need to create a Webull account. Choose between a cash account or margin account (if you want to use borrowed capital) and sign up using Webull’s website or mobile app. To verify your identity, you’ll need documents like a driver's license and Social Security number.
Once you pass this step, you’ll need to fill out some personal information about your income and employment and then link a bank account so you can deposit funds. Ensure all information is correct, and you’ve chosen your preferred account type. Then click Submit and wait for account verification. The Webull review process will usually confirm your account within a business day.
Fund Your Account
Once you’ve opened your account, head over to the Transfers tab and click/tap on Deposit. You can add money to your account through ACH transfer, debit card, or wire transfer. Bank transfers (ACH/debit) are the fastest, while wire transactions take a few days to process (and require a fee). You can also set up a daily, weekly, or monthly recurring deposit.
Navigate the Webull Trading Platform
Now that your account is funded, you’ll want to research stocks and build your portfolio. Click/tap on the Markets tab to review the broker’s stock screener options. You can look for stocks by volume, earnings data, price movement, technical signals, etc. You can also utilize the paper trading feature on Webull to execute a few practice buys before putting any real money at risk.
Trading Fractional Shares on Webull
Once you’re comfortable navigating Webull's platform (either on desktop or mobile app), you can start looking for fractional shares to trade. Remember that every investment in the stock market carries risk, even when buying tiny slices of a share. Always perform due diligence on stocks you want to buy and research competitors in the industry for comparison.
Finding Fractional Share Opportunities
How do you identify the best fractional shares to buy? It depends on your investment goals and time frame. If you’re a day or swing trader, your best option is some method of technical analysis screening, such as stocks approaching inflection points on tools like moving averages or the Relative Strength Index (RSI). Review company earnings reports, analyst price targets, and other financial services data to select the best companies for your portfolio if you're looking for long-term investments.
Placing Fractional Share Trades
First, look for a green diamond icon next to the stock symbol. A green diamond means fractional share purchasing is available, so be sure to screen stocks for this icon. To add a fractional share to your account, locate the Trade section and make sure you change your purchase method from ‘Shares’ to ‘USD.’ If you enter 5, you’ll buy $5 worth of stock and not five separate shares. Note that $5 is the minimum investment amount, and different order types cannot be used with fractional trades. You must select Market Order to execute the transaction and accept the current market price.
Understanding Trading Fees and Commissions
Webull offers commission-free trading on stocks, ETFs, and options, but that doesn’t mean everything you do with your Webull account is completely free of charge. A fractional share trades commission-free like a regular share; transaction costs like bid/ask spreads are factored into every trade.
Additionally, Webull has a fee schedule based on certain types of trading and account activity. Margin rates vary depending on the amount you want to borrow, starting at 9.74%, and options on stocks trading outside U.S. exchanges may carry a $0.55 per contract fee. Futures contracts also carry a $1.25 fee. Wire transfers also cost $8 or $25 depending on whether you’re depositing or withdrawing, and any type of paper statement or confirmation also carries a fee.
Managing Your Fractional Share Portfolio
Your portfolio of fractional securities won’t manage itself. Once you’ve researched, you must periodically review your account and adjust your holdings based on your investment objectives. Our risk tolerance, time frame, and financial needs change over time, so never let your portfolio stagnate. Here are two crucial concepts to remember when navigating the stock market with a fractional share portfolio.
Portfolio Diversification
Some features of your portfolio can be automated to maximize returns. For example, dividend reinvestment programs (DRIPs) automatically buy additional fractional shares with any dividend payout you receive from owning stock. Not every company pays a dividend, but you’ll receive a proportion of the payout based on your fractional share count. For example, if Company XYZ pays a $1.00 quarterly dividend per share and you own 5.25 shares, you’ll receive a $5.25 payout per quarter.
Fractional shares also enhance portfolio diversification because it's easier to calculate the dollar-cost average into slices of shares instead of fully-priced ones. As mentioned above, companies like NVIDIA or Chipotle have share prices in the four-digit range, making dollar-cost averaging into those securities tricky. But with fractional share trading, you can simply enter the dollar amount you want to purchase each week, month, or quarter and average into the stocks you want without breaking your bank account.
Fractional Share Ownership
Buying and selling fractional shares has a few drawbacks in corporate governance. Fractional shareholders usually don’t get voting rights and have no say in shareholder meetings. You’ll get dividends and share splits in proportion to your ownership stake but no rights as a shareholder. Also, fractional shares must be traded during normal market hours since limit orders cannot be used in these trades. That means limited opportunities to trade on catalysts like earnings surprises in pre- or post-market sessions.
Benefits of Fractional Share Investing
Now that you know the process and drawbacks of owning fractional shares, it's time to discuss the benefits. (And let’s face it: most investors have no interest in voting on corporate matters anyway.) Owning fractional shares may not entitle you to voting rights, but it does allow investors with limited capital or experience to build diverse portfolios without too many inhibitive fees. Some of the biggest benefits of learning to trade fractional shares include:
- Limited Risk — Not every investor using an online stock broker is a seasoned professional. Many simply want to learn the best investment methods without blowing up their accounts early. Using fractional shares, novice traders can attempt new techniques and strategies with real money without worrying about too much single-stock risk.
- Makes Investing Accessible — If you’re a small-time investor with limited capital, you previously had two choices with stocks like NVIDIA: ignore them or put all your eggs in one basket and stomach the volatility. However, with fractional share trading, high-priced stocks are no longer out of reach for those with small account balances. For just $5, anyone can become an NVIDIA investor now.
- Increases Optionality — Investors always have different goals and risk tolerance preferences, but deciding to buy and sell can be aggravated when high-priced shares are involved. Strategies like dollar-cost averaging might be inefficient with these types of securities. Fractional shares increase the effectiveness of strategies like DCA because investors don’t need to wait until they have the capital to purchase a fully-priced share allotment.
- Diversification — Finally, and perhaps most importantly, fractional shares make diversification possible for even the smallest accounts. Concentrated portfolios carry large amounts of risk, and a vicious drawdown in a single stock could sour a small investor’s view of the entire stock market. Now, Webull account holders can build portfolios of 10, 20, or even 30 stocks with as little as a few hundred dollars. Novice investors tend to stick with the process if they have good early experiences, which makes diversification possible.
Other Ways to Buy Fractional Shares
Webull isn’t the only broker offering fractional shares. Primary competitors like Robinhood also offer fractional share trading, as do many traditional legacy brokers like Charles Schwab, Fidelity, Vanguard, and Merrill Edge. If you're looking to open a new account, be sure to check out our list of the best stock brokers and compare each option.
If you’re looking for more advanced trading techniques, consider our list of best brokers for short sellers and the best brokers for options trading. Note that Webull is one of the few brokers with commission-free options and cryptocurrency trading, short-selling, and fractional share trading. Also, consider consulting with an advisor before making any serious investment plans. The stock market can be cruel to learn the ropes without guidance.
Frequently Asked Questions
Here are some of the most frequently asked questions about buying fractional shares on Webull.
What are fractional shares?
A fractional share is a small piece of a larger stock share that can be purchased for a specific dollar amount. When fractional shares are traded, it is simply a trade between the larger share pie pieces. Fractional shares on Webull can be purchased for as little as $5.
Is there a downside to fractional shares?
Yes, fractional shares often do not get voting privileges in corporate shareholder meetings. Additionally, fractional shares can only be purchased with a market order, so you can enter a limit price or trade fractional shares in pre- or post-market hours.
Are fractional shares worth it?
If you’re a new investor with limited risk tolerance or lack of capital, fractional shares can be a great way to build a diverse portfolio while learning about the ins and outs of the stock market. Just be sure to understand the pros and cons of fractional shares vs. full shares before buying any stocks or ETFs.
About Dan Schmidt
Dan Schmidt is a finance writer passionate about helping readers understand how assets and markets work. He has over six years of writing experience, focused on stocks. His work has been published by Vanguard, Capital One, PenFed Credit Union, MarketBeat, and Fora Financial. Dan lives in Bucks County, PA with his wife and enjoys summers at Citizens Bank Park cheering on the Phillies.