Fidelity Rolls out Fractional Trading on Shares and ETFs

Fidelity Investments, which claims to have 23 million retail accounts, is the latest US brokerage firm to announce a fractional trading feature as a way to lower the bar for young investors to as little as $1.

Fidelity announced the launch of fractional stock and ETFs-trading on its mobile apps Wednesday but didn’t reveal a time frame to roll out the dollar-based trades on desktop platforms. The feature allows small-bucks investors to diversify their portfolios by spreading their relatively small capital over a broader range of stocks.

Fidelity is getting in on the recent trend of letting retail investors buy fractional assets weeks after Robinhood, and Interactive Brokers launched the dollar-based investing with the same rationale. The move, geared toward attracting more young clients, eliminates the barriers that many investors face as the brokerage split whole shares intentionally so they can sell fractional shares to clients.

“A customer saves $500 to begin investing in several high-priced companies they have been following for their diversified portfolio. With this new capability the price of a single share is not a concern, and the investor buys $100 worth of shares in five different companies, potentially helping with diversification,” Fidelity further explains.

Fidelity is doing this in house

The trend picked up as US major brokers look beyond the no-fee trading war, which set off a new rush among other firms to do the same amid increased competition in the industry to attract the next generation of investors.

The stock-trading business model of those financial giants now resembles the successful features of other players seeking to gain market share, including those offering fractional share trading, such as DriveWealth.

Fractional trading at Fidelity Investments, which manages $7.2 trillion worth of mutual fund assets, comes with a few limitations, including using market or limit order types only, and also pending trades must be valid for the day.

Meanwhile, the US brokerage highlighted how its offering is more appealing to a wider audience since it executes all fractional trades in real-time during market hours. This goes against other firms’ products that execute similar trades at the end of a trading day or wait for multiple orders to add up to full shares rather than holding the remaining shares on their balance sheet. That, however, means more market risk and exposure to Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term.