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Fractional Shares
- tinco 7y agoHalf a decade ago I researched starting a fractional trading platform, and I gave up on the idea because I decided it was illegal. Now in this thread people are saying multiple such platforms exist. Did I make a mistake or get something wrong? Or are they applying some kind of workaround? I can't remember why I thought it wasn't allowed.
- chii 7y ago> I decided it was illegal. how did you somehow decide (unilaterally) it is illegal?
- tinco 7y agoWhen you are alone, then any decision you make is unilateral. Making a decision is quite easy, you just gather information until you feel your argument is well supported, and then you assume your theory is correct and act accordingly.
- zymhan 7y agoSo, what is the actual "vehicle" with which the shares will be purchased? And is this something that exists outside of Robinhood?
- ryanmercer 7y ago>And is this something that exists outside of Robinhood? I'd imagine similar to all of the other brokerage accounts that allow for fractional shares either via direct purchase or dividend reinvestment purchases. RH's competitor SoFi has had fractional shares for a while now, I would imagine it is set up similar.
- manacit 7y agoIt exists outside of Robinhood: - Sofi: https://www.sofi.com/invest/fractional-shares/ https://www.sofi.com/invest/fractional-shares/ - Schwab: https://www.wsj.com/articles/schwab-in-bid-for-younger-clients-to-allow-investors-to-buy-and-sell-fractions-of-stocks-11571334424 https://www.wsj.com/articles/schwab-in-bid-for-younger-clien... I'm not totally sure how it's structured, but I imagine RH "owns" the shares and offers you the corresponding fractional amount of value/dividends, etc.
- atombender 7y agoNote that Schwab has announced it, but it's not available yet.
- mushufasa 7y agoFolio has been doing it for over a decade (https://www.folioinvesting.com/folioinvesting/brokerage-features/dollar-based-investing-and-fractional-shares/ https://www.folioinvesting.com/folioinvesting/brokerage-feat...)
- ceejayoz 7y agoSquare's Cash App permits fractional share purchases, as well.
- sdinsn 7y ago> And is this something that exists outside of Robinhood? Yes, it exists in every other broker. RH is just slow
- zymhan 7y agoAFAIK Vanguard doesn't offer anything like this, unless you're buying into a mutual fund.
- sdinsn 7y agoVanguard has fractional shares because it supports DRIPs. (Robinhood does not support DRIPs.)
- skookum 7y agoIsn't this only for mutual funds? AFAIK, Schwab is the only major old-school brokerage that currently offers fractional shares.
- mrep 7y agoBut Robinhood will next year according to the announcement: Starting early next year, we’ll support Dividend Reinvestment Plan (DRIP) and Recurring Investments. Automatically reinvest cash dividends back into your stocks and ETFs, and schedule recurring investments
- atombender 7y agoThere's a bunch of brokerages offering fractional shares, such as Betterment, Motif, M1, Stash, Stockpile, and others. Schwab has also announced they'll be adding it. There's also DRIP (Divident ReInvestment Plan) plans, a feature brokerages offer to allow fractional reinvestment of dividends. Not sure how it's actually implemented as a financial product.
- hrez 7y agoMost of them are implemented through Apex clearing.
- deleted 7y ago[deleted]
- meritt 7y ago> what is the actual "vehicle" with which the shares will be purchased They changed the data type on the shares_owned field from int to floating point. That's about it. You never owned the shares in the first place, and their maximum risk is the unallocated fractional amount of 1 share of each affected stock (I do wonder if BRKA is disqualified). Learn more: https://www.bloomberg.com/opinion/newsletters/2019-10-18/money-stuff-half-a-share-of-stock-is-better-than-nothing https://www.bloomberg.com/opinion/newsletters/2019-10-18/mon...
- gruez 7y ago>They changed the data type on the shares_owned field from int to floating point probably some sort of decimal type to avoid rounding issues.
- deminature 7y agoYes, I'm sure implementing this feature was as simple as modifying the ownership column in the database. How are dismissive, unthinking comments like this upvoted?
- meritt 7y agoIt was a tongue-in-check reference to the article I linked. > Your share ownership consists of just a number in a database on Schwab’s computers, and if Schwab wants to make that number floating-point that’s Schwab’s business. But let's not act like Robinhood is doing anything new, innovative or difficult here. Numerous other brokerages have offered fractional shares for the past decade.
- PhantomGremlin 7y agoIt was a tongue-in-check reference to the article I linked. The article was by Matt Levine. I think he's the best financial columnist ever. I think you provided a valuable link for people. I can see why some people might downvote you, but I sure can't understand why your earlier comment got flagged.
- grey-area 7y agoFreetrade in the UK is planning offering this in the next few months I think. Fractional shares through DRIP is something else really as you can’t purchase them directly. I’d be interested to know how it works too, but it could be as simple as the brokerage buys 1 share when you ask for 0.5 then keeps the other half on the books, sells the other half to someone else.
- pravus 7y agoFractional shares are common when using DRIPs (Dividend ReInvestment Plans) which basically just use all dividend proceeds to purchase more shares instead of paying out in cash. Since then entire amount is used, you always get a fractional share since it would be very rare to get a dividend that is an exact multiple of the market price. My understanding is that the way this works is that the broker will generally already have an inventory of all of the stocks that are regularly traded through them and simply carve up your fractional allocation from this inventory. When you purchase shares through a broker they can simply sell you the shares directly out of their inventory if they can match the market price. They will even get a small incentive to do this since it produces order flow (volume) without hitting the exchange directly. This also helps with order clearing (the T+3 rule for ownership transfer). Since the broker is selling out of their inventory, it is virtually guaranteed that your order will clear. When transferring shares between institutions, it's possible that this process will fail and you will be notified that your order wasn't able to be fulfilled. It's rare, but can happen. While purchasing fractional shares outright is somewhat new, the concept itself has been around for a while and I've had DRIPs at multiple different brokers. I was even able to get fractional shares of high priced preferred stocks going for $1,000+ market per share. Anyways, that's my experience.
- deleted 7y ago[deleted]
- PhantomGremlin 7y ago(the T+3 rule for ownership transfer) Most countries are now T+2. The USA has been so for over two years. https://en.wikipedia.org/wiki/T%2B2 https://en.wikipedia.org/wiki/T%2B2
- wyxuan 7y agoArticle from BI: https://www.businessinsider.com/robinhood-stock-trading-app-rolling-out-fractional-share-trading-2019-12 https://www.businessinsider.com/robinhood-stock-trading-app-...
- mushufasa 7y agoFYI, Folio has been offering fractional shares for over a decade. They're terrible at marketing and don't have as slick an app, but they control their full stack down to the DTCC. They cover their traces in patents, so I'm not sure Robinhood is doing the same thing as Folio has battle-tested https://www.folioinvesting.com/folioinvesting/brokerage-features/dollar-based-investing-and-fractional-shares/ https://www.folioinvesting.com/folioinvesting/brokerage-feat... (I do not work for Folio)
- Ambele 7y agoM1 Finance already has fractional shares too. They're newer than Robinhood but they're built to be more of a long-term investing platform. Robinhood's UI feels more like a gambling platform to trade hourly on IMO. M1's "Pies" feature is very compelling. https://www.m1finance.com/how-it-works/invest/pies https://www.m1finance.com/how-it-works/invest/pies (I do not work for either. I've used Robinhood for 4 years.)
- hrez 7y agoIt's Apex Clearing that provides fractional shares ability to the bunch of discount brokerages and roboadvisors. Edit: Looks like Robinhood moved out of Apex to their own clearing.
- awinder 7y agoProblem that m1 is going to have imo now is the once a day trading window. The value proposition for this market has seriously changed with the big player move to free trades, and fractional shares are a good wedge since the bigger players don’t have that. But now m1 is a smaller player with more restrictions than m1, and it’s going to be tough.
- Animats 7y agoDo you really own anything, or are you just lending money to Robinhood? Does your fractional buy get reported to the transfer agent for the stock? Do you get the annual report? Voting rights?
- grey-area 7y agoMost retail investors don’t want an annual report or voting rights, nor do they mind if they own the share if the asset they buy tracks it sufficiently well.
- kick 7y agoIt's still necessary information to know, regardless of what retail investors want. If they were up front about it, it wouldn't matter, but they don't seem to be.
- slg 7y agoOr perhaps more importantly, if Robinhood fails do you actually get to keep the shares like with a traditional broker or do "your" fractional shares disappear with the company?
- toomuchtodo 7y agoIt's possible SIPC insurance steps in and provides cash value, with your fractional ownership relinquished.
- slg 7y agoDoesn't that rely on you being the actual owner of the shares? If your shares only exist in Robinhood's database, I don't think SIPC would apply. EDIT: After some Googling it appears that SIPC does protect securities that weren't actually purchased due to fraud or mismanagement. IANAL so I don't know if that would apply to this specific situation, but they have protected other non-owners before like in the case of Bernie Madoff.
- tempsy 7y agoI'm really curious if this is a legitimate growth driver for brokerages and what % of trading volume is represented by a buyer looking to buy < 1 share in a certain company. It feels very incremental to me. It also feels like a feature that is representative of something that would only happen at the "top" of the market.
- goler 7y agoI agree. Very incremental and I’d be surprise if it’s a meaningful growth driver. However, it probably has most appeal to new investors who are just starting out which seems on-message for Robinhood. My teenager who got interested in learning about investing this past year has a portfolio comprised almost entirely of single share positions. Fractional shares would interest him.
- crazygringo 7y agoActually I think this is huge, not for existing investors but precisely for people who aren't. For a teenager who wants to invest $100 to "dip their toes in" when a share of Amazon is over $1,700?!?! And Google over $1,300? Back in the days when stock regularly split it wasn't a big issue. But now that a bunch of companies think it's somehow unfashionable to split their stock (e.g. Amazon and Google), all this does is exclude smaller investors. Fractional shares solves this problem. A single share of stock shouldn't cost more than a MacBook, sheesh.
- skybrian 7y agoDo we want to encourage teenagers to buy stock in individual companies? Index funds I could see.
- tempsy 7y agoWhy not? Mainstream personal finance advice is pitiful. There's wide consensus that ETFs are a bubble. On the other hand, the notion that buying an individual stock is equivalent to gambling is nonsense.
- skizm 7y agoThis is good if you want to invest in BRK.A.
- AcerbicZero 7y agoAh, shares of shares. Through Robinhood no less. Sounds like a great plan for the platform which has had how many comically massive mistakes over the past few months? Are they going to let r/wsb leverage these 100x as well? Don't get me wrong, I love some of what they're doing....I just don't trust them with my money.
- frockington1 7y agoConsidering they have completely annihilated their reputation with anyone remotely paying attention, the only market left for them might be 18 year olds who can only invest $10 at a time
- everetm 7y agoThat's a pretty toxic comment. Surely multiple banks and other software businesses have made mistakes but that doesn't stop the users from trusting their services. All this will blow over and people will forgive and forget. You don't need to age discriminant just because they make it easier to invest
- frockington1 7y agoAs a financial institution trust is everything. When they lied about savings accounts being SPIC insured, they lost a lot of credibility that will be near impossible to get back. And nothing against 18 year old, I also used Robinhood starting out. But once you have over a couple thousand invested, you need a bit more confidence in the company. This is without even going into the stupidity that was infinite leverage and the CEOs response afterwards. That is an entirely different level of incompetence that would need a novel to fully expand upon
- deleted 7y ago[deleted]
- mhuston 7y ago> "Considering they have completely annihilated their reputation with anyone remotely paying attention" Can you elaborate on this a bit and/or share article(s)?
- alphabettsy 7y agoThis isn’t really a new thing, DRIPs have had this forever, but nice to see it available especially when looking at purchases like AMZN where maybe you can only afford purchase 2.75 shares or something.
- Ambele 7y agoMany investors have been switching from Robinhood to M1 Finance but maybe this announcement is intended to slow the flow.
- chanchar 7y agoHere's hoping this prompts Schwab to do the same. They've already made a public statement saying it would be in the works.
- Gunax 7y agoI don't quite understand the appeal of investing via phone app. Investing my life savings (any any amount really) is one of the few things I would absolutely not want to do on a phone touchscreen. When I heard of Robinhood I thought it would fail for sure... I guess that shows how much I can predict startup success.
- desine 7y agoI don't see how the phone format is so much worse? To be honest, most of my recent investments have been limit orders submitted from the can. Of course by that point I've already done a lot of research on a desktop computer, but if I get a price movement alert I'm double checking for recent news (often with a twitter cross reference) and submitting an order as fast as I can... which often means using the closest device, which more often than not is my phone
- bransonf 7y agoI don’t use Robinhood anymore, but it’s definitely had an effect on retail brokerages. Foremost, it has attracted a younger crowd than most other brokerages have been able to. The $0 commission is now pretty universal, and most brokerages are pushing better mobile apps. I don’t really trade from my phone, but you have to admit it’s convenient for when you’re not always near a desktop.
- caleb-allen 7y agoI heard Robin Hood earns revenue by operating a trading dark pool. Is this true? And if so, wouldn't using Robinhood be like jumping into a shark tank?
- nradov 7y agoThe whole idea of "shares" is a pointless legacy concept. What really matters is the fraction of the company you own. Back when trading was conducted using physical paper stock certificates it made sense to have discrete individual shares but the concept has now outlived its usefulness. In the future it would make more sense to just say, for example, that you can invest $12345.67 to purchase 0.0000000058% of company XYZ.
- valdiorn 7y agoyou are very wrong on this. Shares still matter very much, for reasons of legal ownership (each share has a value assigned to it, and can be sold as a discrete entity, a fraction of something does not), voting and share priority rules (who gets paid first in the event of bankruptcy) and when dealing with dilution, new issue and stock splits. The entire legal system around equity investment is built around these concepts, and while you might take a different approach to the whole thing if you could "do a full re-write of the codebase", that's not really how laws work. There's also the fact that the same or very similar rules are applied worldwide, allowing like-for-like laws to apply cross borders. A Chinese share can be described by US laws. Do you know how hard it would be to toss all that global legal framework out and replace it with something else? And you've not really explained why you think your system is better, either. I'd say the discrete units of shares that make ownership laws simpler are worth the hassle, on their own.