Published - August 3rd, 2023 @ 09:30 AM (GMT+2)

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What are fractional Shares?

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Fractional shares are portions of a whole share of a company's stock, allowing investors to own a part of a share rather than one or more full shares. They enable investors to invest in stocks that might otherwise be too expensive to purchase as full shares.

For example, if a stock is priced at $1,000 per share, an investor could buy a fractional share worth 5% of a full share for $50. Fractional shares have democratised investing by allowing access to securities that were once out of reach, providing opportunities for diversification, and offering the same percentage gains and benefits of stock ownership, including dividends.
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How do fractional shares work?

Fractional shares can be created through stock splits, mergers, acquisitions, or dividend reinvestment plans. They can also be purchased directly through certain brokerages. They provide flexibility, accessibility, and the same benefits as owning whole shares. Whether you're looking to invest in high-priced stocks or diversify your portfolio, fractional shares can be a valuable tool in your investment strategy.

Unlike full shares, fractional shares don't trade on the open market. To sell them, you must go through a major brokerage firm, which can combine them with other fractional shares to form a whole share.
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Accessibility and Flexibility:
Fractional shares have made investing more flexible and accessible, especially for beginners or those with limited capital. They facilitate portfolio diversification and enable investment in high-priced stocks.

Tax Considerations:
In events like stock splits or mergers, you may have the option to receive cash instead of fractional shares, and this income may be taxable.

Brokerage Role:
Many major brokerage firms offer fractional shares, and some even provide real-time fractional shares trading for stocks and ETFs.
Including MEXEM, offer fractional shares, allowing investors to create a diversified portfolio with any budget. Investors can buy a fraction instead of buying the full stock, providing access to 150 markets from 33 countries and 23 currencies, all from a single account.
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The difference between: Whole share & Fractional shares:
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Fractional shares offer the same percentage gains and benefits as full shares, including proportionate dividends. They allow for diversification and dollar-cost averaging, even with limited funds.

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Whole Share: A whole share represents a complete unit of ownership in a company.

• Trading: Whole shares are traded on the open market, and investors can buy and sell them through various brokerage platforms.
  
  
• Investment Requirement: To purchase a whole share, an investor must pay the full price of the share, which can be expensive for high-priced stocks.
  
  
• Dividends: If the company pays dividends, whole share owners receive the full dividend amount corresponding to each share owned.

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Fractional Shares: A fractional share is a portion of a whole share, allowing investors to own less than one full share of a company's stock.
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• Creation: Fractional shares can be created through stock splits, mergers, acquisitions, or dividend reinvestment plans. They can also be purchased directly through certain brokerages.
  
  
• Trading: Unlike whole shares, fractional shares don't trade on the open market. Selling them requires a major brokerage firm, which can combine them with other fractional shares to form a whole share.

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• Investment Opportunity: Fractional shares allow investors to invest a specific dollar amount in a stock, even if it's less than the price of a whole share. This makes high-priced stocks accessible to more investors.
  
  
• Dividends: Fractional shares pay a proportionate amount of the dividend corresponding to the fraction of the share owned.

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Key Differences:
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• Ownership: Whole shares represent complete ownership units, while fractional shares represent a part of a whole share.
  
  
• Accessibility: Whole shares require the full share price for investment, while fractional shares allow investment in specific dollar amounts, providing access to high-priced stocks.
  
  
• Trading Mechanism: Whole shares are traded on the open market, while fractional shares are traded through major brokerage firms that offer this service.
  
  
• Investment Flexibility: Fractional shares offer more flexibility, especially for beginners or those with limited capital, enabling portfolio diversification and investment in high-priced stocks.

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Pros & Cons of fractional shares:

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Advantages of Fractional Shares:

• Accessibility: Fractional shares allow investors to invest in stocks with high share prices with a smaller budget.
  
  
• Diversification: They enable investors to diversify their portfolios by investing in multiple stocks without needing a large amount of capital.
  
  
• Flexibility: Investors can start investing with an amount that fits their budget and explore more types of securities.
  
  
• Dividend Payments: Fractional shareholders receive a proportional share if an investment pays dividends.
  
  
• Potential Growth: Even small investments in fractional shares can grow significantly over time with the power of compounding.

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Disadvantages of Fractional Shares:
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• Trading Limitations: There may be limits on when, how, and what you can
  sell, and fractional shares typically can't be transferred to a different broker.
  
  
• Fees: Some brokerages may charge fees for trading fractional shares.
  
  
• Lower Dividend Income: Since you own only a fraction of a share, the dividend income will be proportionally lower.
  
  
• Lack of Voting Rights: Fractional shares may not come with stock voting rights.
  
  
• Risk of Illiquid Shares: Fractional shares might be more challenging to sell, especially if they are illiquid.
  
  
• Tax Consequences: Changing brokerages or liquidating fractional shares can have tax implications.

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How to Buy & Sell fractional Shares:
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How to Buy Fractional Shares:
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• Choose the Right Brokerage: Select a brokerage firm offering fractional shares. Not all firms provide this service, so finding one that does is essential.

• Decide on Your Investment: You don't need to buy a whole share; you can invest a specific dollar amount in a stock, even if it's less than the price of an entire share.

• Explore High-Value Stocks: Fractional shares enable you to invest in high-priced stocks like Amazon, even with limited funds.

• Consider Dividend Reinvestment Plans (DRIPs): These plans can automatically reinvest dividends into additional or fractional shares, allowing for gradual growth.
  
  

How to Sell Fractional Shares:
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• Understand the Process: Fractional shares don't trade on the open market. To sell them, you must go through a major brokerage firm that offers this service.

• Be Aware of Potential Delays: If the stock doesn't have high demand, selling fractional shares might take longer. The brokerage firm may need to combine them with other fractional shares to form a whole share.

• Consider Stock Splits & Mergers: If you end up with fractional shares due to stock splits, mergers, or acquisitions, you may have the option to receive cash instead of the fractional shares. Be aware that this income may be taxable.

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Conclusion:

In conclusion, fractional shares have revolutionized investing by making it more accessible and flexible. They enable investors to engage in dollar-based investing, gain exposure to high-priced stocks, and build diversified portfolios, all without needing to purchase full shares.

Whether you're a young investor with limited funds or looking to diversify your portfolio, fractional shares provide an opportunity to invest in stocks that might otherwise be out of reach.
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Brokerages like MEXEM play a crucial role in this ecosystem by offering fractional shares, enabling investors to create a diversified portfolio with any budget and providing access to a wide range of markets and currencies from a single account.
This offering underscores MEXEM's commitment to making investment more accessible and aligns with the broader trend of innovation and inclusivity in the financial markets.

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The information on mexem.com is for general informational purposes only. It should not be regarded as investment advice. Investing in stocks involves risk. A stock's past performance is not a reliable indicator of its future performance. Always consult a financial advisor or trusted sources before making any investment decisions

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