(eToro Blog) One reason that investors tend to like mutual funds is because it allows them to buy a share of a stock that they’d like to own without having to fork over the whole amount at once. Let’s face it, the most popular and bluest of the blue chips are not cheap; take the two top tech stocks Apple and Google, for example, which is trading at $668 and $767, respectively. By the time an investor gets the money together to buy a share, well, if they’re lucky the price hasn’t gone up too much. But mutual funds also often have shares of stock that an investor might not be so interested in; here’s where fractional shares come in.
In the past, a corporation might be compelled to issue fractional shares as a result of a stock split or a dividend reimbursement and for the most part it was only an existing shareholder who could obtain the fractional shares. Now, fractional shares are being offered for trade by some online brokers, including eToro.
Why buy a fractional share? Why not? Analysts point out that one of the boons of fractional share purchases is that an investor can buy higher quality stocks which offer greater potential for profits. It allows an investor to buy a fraction of a single share, and the purchases are made in terms of dollars, not shares. That’s the way it’s done here at eToro, of course, with shares in several of the top corporations available, including Apple and Google, but also Microsoft, Facebook, Zynga, Yahoo and Amazon. The ability to invest in dollar terms and not shares means that an investor can put any amount they choose and it will be applied toward a full or fractional share of stock.
There is a key difference between an existing stockholder’s fractional share of stock and one that is obtained through a broker like eToro. For example, when you invest in a stock through eToro, you buy a CFD or Contract for Difference which reflects the ownership of that particular stock. eToro then is a counterpart to your CFD; you, as the investor, do no have the same rights that an actual shareholder would have as you don’t actually own the stock, only the CFD.
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