4 ms·

So, what is the actual "vehicle" with which the shares will be purchased? And is this something that exists outside of Robinhood?

by zymhan 7y ago

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 ago
It 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 ago
  Note that Schwab has announced it, but it's not available yet.
- mushufasa 7y ago
  Folio 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 ago
  Square'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 ago
  AFAIK Vanguard doesn't offer anything like this, unless you're buying into a mutual fund.
  - sdinsn 7y ago
    Vanguard has fractional shares because it supports DRIPs. (Robinhood does not support DRIPs.)
    - skookum 7y ago
      Isn't this only for mutual funds? AFAIK, Schwab is the only major old-school brokerage that currently offers fractional shares.
      - mrep 7y ago
        I'm not sure if you can buy fractional shares outright but all of my ETFs in vanguard contain partial shares as they are all set up to reinvest dividends.
      - sdinsn 7y ago
        > Isn't this only for mutual funds? No.
    - mrep 7y ago
      But 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 ago
There'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 ago
  Most 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 ago
  Yes, 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 ago
    It 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 ago
      It 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 ago
Freetrade 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 ago
Fractional 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

So, what is the actual "vehicle" with which the shares will be purchased? And is this something that exists outside of Robinhood?

by zymhan 7y ago

So, 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 ago

It 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 ago
Note that Schwab has announced it, but it's not available yet.
mushufasa 7y ago
Folio 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 ago
Square'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 ago
AFAIK Vanguard doesn't offer anything like this, unless you're buying into a mutual fund.
- sdinsn 7y ago
  Vanguard has fractional shares because it supports DRIPs. (Robinhood does not support DRIPs.)
  - skookum 7y ago
    Isn't this only for mutual funds? AFAIK, Schwab is the only major old-school brokerage that currently offers fractional shares.
    - mrep 7y ago
      I'm not sure if you can buy fractional shares outright but all of my ETFs in vanguard contain partial shares as they are all set up to reinvest dividends.
    - sdinsn 7y ago
      > Isn't this only for mutual funds? No.
  - mrep 7y ago
    But 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 ago

There'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 ago
Most 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 ago
Yes, 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 ago
  It 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 ago
    It 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 ago

Freetrade 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 ago

Fractional 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