After eliminating trading commissions two months ago, Interactive Brokers LLC (NASDAQ:IBKR) has updated its trading app to provide its clients with the opportunity to trade fractions of stocks.
The move, geared toward attracting more young clients, eliminates the barriers that many investors face when trying to invest in a diversified portfolio of US-listed securities. Fractional share trading allows investors to diversify their investment portfolios by spreading their relatively small capital over a broader range of stocks.
Charles Schwab was the first among US major brokers to let investors buy and sell fractions of stocks. As they look beyond the no-fee trading war, the move could set off a new rush among other brokers to do the same amid increased competition in the industry to attract the next generation of investors.
IB explains that the new feature comes in handy for both IBKR Lite and Pro clients who can’t afford to pay a high price tag for companies like Amazon or Google.
“Want to buy just $ 500 worth of an expensive stock like AMZN, or looking to diversify among more investments? Now you can - fractional share trading with the ability to enter order size in terms of dollar amounts is in gradual rollout,” the company said.
The race to the bottom
Earlier in October, Interactive Brokers cut trading commissions to zero, setting off a war among brokerages that led almost all competitors to drop fees on virtually the entire Exchange -traded products later in the next month.
Considering the new bar set by Schwab, IB’s response might be all the rest of the industry can do. As such, E*Trade, TradeStation, and Fidelity having all moved to zero-commission trading could follow suit on fractional trading in the next few weeks.
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.
DriveWealth, which launched its fractional share trading capabilities in 2016, enables investors of any size to gain affordable access to the U.S. stock market from a range of countries, including India, Nigeria, and Brazil.
