Fidelity lets clients now trade fractional shares of stocks and ETFs

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pokebowl
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Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by pokebowl » Wed Jan 29, 2020 10:00 am

Announcement: Here
BOSTON, Jan. 29, 2020 – Fidelity Investments®, the largest online brokerage firm with more than 23 million retail brokerage accounts, today announced availability of real-time fractional shares trading of stocks and ETFs (also known as dollar-based investing). This simplified way of investing, which is being rolled out to Fidelity’s retail customers beginning today and will continue over the next several weeks, allows investors to trade as little as 0.001 of a share...Fractional share or dollar-based trades, which must be market or limit order types and are good for the day only, are available in eligible Fidelity retail accounts, including brokerage, HSAs, IRAs, and self-directed brokerage accounts via a workplace retirement plan.
So now we see if Vanguard and others will decide to follow suit. I can see this being a game changer for the big brokerages.
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LK2012
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by LK2012 » Wed Jan 29, 2020 10:07 am

Interesting, thanks for the info.

retiringwhen
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by retiringwhen » Wed Jan 29, 2020 10:12 am

Amazing how what looked like a competitive advantage to Schwab a month ago is commoditized so quickly.... I guess they were planning this for a while. I can't imagine Fidelity turned this feature around in 4 weeks. On top they are going to do it for ETFs putting pressure back on Schwab... Now it is in Vanguard's court to meet the new bar.

StrangePenguin
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by StrangePenguin » Wed Jan 29, 2020 10:14 am

This is pretty nice.

I assume the emphasis in the press release on trading in the mobile app is marketing fluff, and they will also have this feature available in the web-based platform?

Fclevz
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by Fclevz » Wed Jan 29, 2020 10:17 am

Strange that there doesn't seem to be any mention of it on their website yet.

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TheTimeLord
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by TheTimeLord » Wed Jan 29, 2020 10:18 am

pokebowl wrote:
Wed Jan 29, 2020 10:00 am
Announcement: Here
BOSTON, Jan. 29, 2020 – Fidelity Investments®, the largest online brokerage firm with more than 23 million retail brokerage accounts, today announced availability of real-time fractional shares trading of stocks and ETFs (also known as dollar-based investing). This simplified way of investing, which is being rolled out to Fidelity’s retail customers beginning today and will continue over the next several weeks, allows investors to trade as little as 0.001 of a share...Fractional share or dollar-based trades, which must be market or limit order types and are good for the day only, are available in eligible Fidelity retail accounts, including brokerage, HSAs, IRAs, and self-directed brokerage accounts via a workplace retirement plan.
So now we see if Vanguard and others will decide to follow suit. I can see this being a game changer for the big brokerages.
Thanks great information. If this is combined with no commission and buying baskets of stocks we may see a challenger emerging to just plain indexing.
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runner3081
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by runner3081 » Wed Jan 29, 2020 10:18 am

This is excellent! No more extra funds sitting unused!

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TheTimeLord
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by TheTimeLord » Wed Jan 29, 2020 10:19 am

StrangePenguin wrote:
Wed Jan 29, 2020 10:14 am
This is pretty nice.

I assume the emphasis in the press release on trading in the mobile app is marketing fluff, and they will also have this feature available in the web-based platform?
I will bet you emphasis on mobile app is because this move is to attract younger investors.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

Fclevz
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by Fclevz » Wed Jan 29, 2020 10:19 am

The beginning of the end for traditional mutual funds?

Silk McCue
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by Silk McCue » Wed Jan 29, 2020 10:20 am

Fclevz wrote:
Wed Jan 29, 2020 10:17 am
Strange that there doesn't seem to be any mention of it on their website yet.
That's what you call "Hot off the presses."

Cheers

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by Silk McCue » Wed Jan 29, 2020 10:22 am

Fclevz wrote:
Wed Jan 29, 2020 10:19 am
The beginning of the end for traditional mutual funds?
I will switch to lower cost ETFs at Vanguard as soon as they get around to making this change. I expect to be waiting patiently for a long time but would be happy to be proven wrong.

Cheers

snailderby
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by snailderby » Wed Jan 29, 2020 10:25 am

This is great. Downloading the Fidelity app now.
Last edited by snailderby on Wed Jan 29, 2020 10:27 am, edited 1 time in total.

retiringwhen
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by retiringwhen » Wed Jan 29, 2020 10:25 am

Silk McCue wrote:
Wed Jan 29, 2020 10:22 am
Fclevz wrote:
Wed Jan 29, 2020 10:19 am
The beginning of the end for traditional mutual funds?
I will switch to lower cost ETFs at Vanguard as soon as they get around to making this change. I expect to be waiting patiently for a long time but would be happy to be proven wrong.

Cheers
I believe this year is the tipping point.

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anon_investor
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by anon_investor » Wed Jan 29, 2020 10:26 am

Silk McCue wrote:
Wed Jan 29, 2020 10:22 am
Fclevz wrote:
Wed Jan 29, 2020 10:19 am
The beginning of the end for traditional mutual funds?
I will switch to lower cost ETFs at Vanguard as soon as they get around to making this change. I expect to be waiting patiently for a long time but would be happy to be proven wrong.

Cheers
+1. Although, Vanguard came around to commission free stock trading faster than I expected.

Until Vanguard offers this, I will continue to hold VTSAX instead of VTI.

mervinj7
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by mervinj7 » Wed Jan 29, 2020 10:28 am

Wonderful news. Will be using this feature right away!

columbia
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by columbia » Wed Jan 29, 2020 10:30 am

re:Vanguard funds that are ETF only:

Does that affect the heartbeat trades?
If you leave your head in the sand for too long, you might get run over by a Jeep.

retiringwhen
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by retiringwhen » Wed Jan 29, 2020 10:38 am

columbia wrote:
Wed Jan 29, 2020 10:30 am
re:Vanguard funds that are ETF only:

Does that affect the heartbeat trades?
I can't see how they have an impact. heartbeat trades are exactly the opposite, a series of very LARGE transactions by financial institutions used to move shares in and out of the fund for cost-basis management and manage whatever positions they want to manage.

This announcement is all about the little guy buying $1 or $10 or whatever small trades. Fidelity is basically keeping a fractional book between the investor and the marketplace to facilitate small trades (and most likely regular weekly paycheck purchases for example).

I have to say this sounds great until folks end up with hundreds of transactions in the cost-basis. Maybe Average Cost would look more manageable. I had decades of DRIP purchases on a utility fund, many for 1 or 2 shares. It was a record keeping challenge. Need a lot of trust in your brokerage's data record keeping.

dkturner
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by dkturner » Wed Jan 29, 2020 10:50 am

Gee, now I can buy 3/1000 of a share of Berkshire Hathaway Class A stock For about $1,000. Now I can tell my friends that I own the Class A “shares”. 8-)

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by MotoTrojan » Wed Jan 29, 2020 10:52 am

runner3081 wrote:
Wed Jan 29, 2020 10:18 am
This is excellent! No more extra funds sitting unused!
Indeed! I wonder if we can now do automatic ETF investment. For liquid funds I wouldn’t be opposed.

Chrono Triggered
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by Chrono Triggered » Wed Jan 29, 2020 11:04 am

This is pretty great.

I'm curious though, if one purchased fractional shares at Fidelity and wanted to transfer to another brokerage in the future, how would that work?

arf30
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by arf30 » Wed Jan 29, 2020 11:14 am

Doesn't look like it's rolled out to me on the web yet, can only put in a buy order for whole number of shares, no partial or dollar amount.

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by MotoTrojan » Wed Jan 29, 2020 11:15 am

Chrono Triggered wrote:
Wed Jan 29, 2020 11:04 am
This is pretty great.

I'm curious though, if one purchased fractional shares at Fidelity and wanted to transfer to another brokerage in the future, how would that work?
I’d wager the same way Fidelity and all others handle fractional shares accumulated via dividend reinvestment; when you transfer they sell the fraction and transfer that cash over along with whole shares.

rascott
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by rascott » Wed Jan 29, 2020 11:20 am

Hopefully will be offered in Brokerage Link for those of us with Fidelity 401ks. Combine this with auto- investing settings..... and we can buy $xx of XYZ ETF every two weeks..... now that's a winner.

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by Texanbybirth » Wed Jan 29, 2020 11:21 am

runner3081 wrote:
Wed Jan 29, 2020 10:18 am
This is excellent! No more extra funds sitting unused!
+1
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Gort
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by Gort » Wed Jan 29, 2020 11:21 am

dkturner wrote:
Wed Jan 29, 2020 10:50 am
Gee, now I can buy 3/1000 of a share of Berkshire Hathaway Class A stock For about $1,000. Now I can tell my friends that I own the Class A “shares”. 8-)
That might even get you a front row seat at the annual shareholders' meeting! :sharebeer

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by Silk McCue » Wed Jan 29, 2020 11:27 am

retiringwhen wrote:
Wed Jan 29, 2020 10:38 am

I can't see how they have an impact. heartbeat trades are exactly the opposite, a series of very LARGE transactions by financial institutions used to move shares in and out of the fund for cost-basis management and manage whatever positions they want to manage.

This announcement is all about the little guy buying $1 or $10 or whatever small trades. Fidelity is basically keeping a fractional book between the investor and the marketplace to facilitate small trades (and most likely regular weekly paycheck purchases for example).

I have to say this sounds great until folks end up with hundreds of transactions in the cost-basis. Maybe Average Cost would look more manageable. I had decades of DRIP purchases on a utility fund, many for 1 or 2 shares. It was a record keeping challenge. Need a lot of trust in your brokerage's data record keeping.
There could be some folks doing ridiculously small trades ($1 or $10 ) but what it opens up is for folks that want to invest on a weekly or monthly basis in an ETF, in the same manner in which they currently invest in the corresponding mutual fund, to do so in an automated fashion. And, in that case there is no meaningful difference in record keeping between doing so in a MF or an ETF.

Cheers

sycamore
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by sycamore » Wed Jan 29, 2020 11:47 am

Silk McCue wrote:
Wed Jan 29, 2020 11:27 am
retiringwhen wrote:
Wed Jan 29, 2020 10:38 am

I can't see how they have an impact. heartbeat trades are exactly the opposite, a series of very LARGE transactions by financial institutions used to move shares in and out of the fund for cost-basis management and manage whatever positions they want to manage.

This announcement is all about the little guy buying $1 or $10 or whatever small trades. Fidelity is basically keeping a fractional book between the investor and the marketplace to facilitate small trades (and most likely regular weekly paycheck purchases for example).

I have to say this sounds great until folks end up with hundreds of transactions in the cost-basis. Maybe Average Cost would look more manageable. I had decades of DRIP purchases on a utility fund, many for 1 or 2 shares. It was a record keeping challenge. Need a lot of trust in your brokerage's data record keeping.
There could be some folks doing ridiculously small trades ($1 or $10 ) but what it opens up is for folks that want to invest on a weekly or monthly basis in an ETF, in the same manner in which they currently invest in the corresponding mutual fund, to do so in an automated fashion. And, in that case there is no meaningful difference in record keeping between doing so in a MF or an ETF.

Cheers
Agree this is more about doing dollar-based ETF (or stock) trades, like one can do with mutual funds. From the announcement (emphasis mine):
Fractional share or dollar-based trades, which must be market or limit order types and are good for the day only, are available in eligible Fidelity retail accounts, including brokerage, HSAs, IRAs, and self-directed brokerage accounts via a workplace retirement plan.
I like it!

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by jhfenton » Wed Jan 29, 2020 12:28 pm

mervinj7 wrote:
Wed Jan 29, 2020 10:28 am
Wonderful news. Will be using this feature right away!
Maybe. I don't seem to have the feature yet on the iOS app.
arf30 wrote:
Wed Jan 29, 2020 11:14 am
Doesn't look like it's rolled out to me on the web yet, can only put in a buy order for whole number of shares, no partial or dollar amount.
At this point, it is not available on the website, only to some folks through their iOS and Android apps. And I don't seem to have the option yet on iOS.

dreamrrr
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by dreamrrr » Wed Jan 29, 2020 12:31 pm

I don't have it yet on my mobile app but found this on the Fidelity website. https://www.fidelity.com/trading/fractional-shares
Will take some time to roll this out. I will be using this new feature.

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by wrongfunds » Wed Jan 29, 2020 12:52 pm

MotoTrojan wrote:
Wed Jan 29, 2020 11:15 am
Chrono Triggered wrote:
Wed Jan 29, 2020 11:04 am
This is pretty great.

I'm curious though, if one purchased fractional shares at Fidelity and wanted to transfer to another brokerage in the future, how would that work?
I’d wager the same way Fidelity and all others handle fractional shares accumulated via dividend reinvestment; when you transfer they sell the fraction and transfer that cash over along with whole shares.
Are all ETF's same or proprietary to the brokerage house? I had stayed away from ETF because there was no dollar cost averaging of ETF in the past. Do all ETF do not declare year end distribution or only Vanguard special?

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JamesSFO
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by JamesSFO » Wed Jan 29, 2020 1:11 pm

This is very cool.

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by UpperNwGuy » Wed Jan 29, 2020 1:12 pm

Fidelity's action devalues Vanguard's soon-to-expire patent, although Vanguard already started to devalue their patent by allowing ETFs to charge a lower ER than their associated mutual funds.

I'm wondering if Fidelity's next step will be to develop more in-house ETFs as opposed to relying on BlackRock for all ETFs other than sectors.

mervinj7
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by mervinj7 » Wed Jan 29, 2020 1:13 pm

dreamrrr wrote:
Wed Jan 29, 2020 12:31 pm
I don't have it yet on my mobile app but found this on the Fidelity website. https://www.fidelity.com/trading/fractional-shares
Will take some time to roll this out. I will be using this new feature.
Anybody notice this question?
When can I place fractional share and dollar-based trades?
Fractional orders can be placed at any time 24 hours a day, 7 days a week. Dollar-based orders can be placed during market hours (approximately 9:30 a.m. to 4:00 p.m. EST) on normal trading days.
If you place a fractional order for VTI (let's say 0.1 shares) in the middle of the night, will they fulfill at market open or with after-hours trading?

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by sycamore » Wed Jan 29, 2020 1:23 pm

MotoTrojan wrote:
Wed Jan 29, 2020 11:15 am
Chrono Triggered wrote:
Wed Jan 29, 2020 11:04 am
This is pretty great.

I'm curious though, if one purchased fractional shares at Fidelity and wanted to transfer to another brokerage in the future, how would that work?
I’d wager the same way Fidelity and all others handle fractional shares accumulated via dividend reinvestment; when you transfer they sell the fraction and transfer that cash over along with whole shares.
Yes, per the FAQ section at https://www.fidelity.com/trading/fractional-shares that dreamrrr referred to in a different post:
Can I transfer fractional shares or receive a stock certificate for them?
Fractional shares cannot be transferred, and stock certificates are not available for them. Fractional shares need to be sold prior to any transfer.

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by MotoTrojan » Wed Jan 29, 2020 1:25 pm

wrongfunds wrote:
Wed Jan 29, 2020 12:52 pm
MotoTrojan wrote:
Wed Jan 29, 2020 11:15 am
Chrono Triggered wrote:
Wed Jan 29, 2020 11:04 am
This is pretty great.

I'm curious though, if one purchased fractional shares at Fidelity and wanted to transfer to another brokerage in the future, how would that work?
I’d wager the same way Fidelity and all others handle fractional shares accumulated via dividend reinvestment; when you transfer they sell the fraction and transfer that cash over along with whole shares.
Are all ETF's same or proprietary to the brokerage house? I had stayed away from ETF because there was no dollar cost averaging of ETF in the past. Do all ETF do not declare year end distribution or only Vanguard special?
The ETF structure is the same from broker to broker, which allows them to be transferable too. Some ETFs have had capital gain distributions if that is what you are asking, but it is rare for most broadly traded ones. For example VIOV & IJS have been solid, but SLYV used to have distributions (these all track the same index).

I only use ETFs myself.

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by mister_sparkle » Wed Jan 29, 2020 2:11 pm

It's threads like this that make reading and posting here so great, so thanks for the heads-up.

How can we tell if we're able to purchase partial ETF shares? Right now my Trade screen looks the same as it did before.

EnjoyIt
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by EnjoyIt » Wed Jan 29, 2020 2:17 pm

anon_investor wrote:
Wed Jan 29, 2020 10:26 am
Silk McCue wrote:
Wed Jan 29, 2020 10:22 am
Fclevz wrote:
Wed Jan 29, 2020 10:19 am
The beginning of the end for traditional mutual funds?
I will switch to lower cost ETFs at Vanguard as soon as they get around to making this change. I expect to be waiting patiently for a long time but would be happy to be proven wrong.

Cheers
+1. Although, Vanguard came around to commission free stock trading faster than I expected.

Until Vanguard offers this, I will continue to hold VTSAX instead of VTI.
I agree. I love that fidelity has this. It means Vangaurd will be forced to follow.
I hope.

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by Jack FFR1846 » Wed Jan 29, 2020 2:20 pm

This is really cool and I hope Schwab follows with the same. Currently, in my Schwab Roth account with all ETFs, spare change from dividends have been buying SWPPX. It would be nice to just push it all into SCHB.
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by GaryA505 » Wed Jan 29, 2020 2:22 pm

Does this mean that Fidelity might allow automatic RMD disbursements on account with ETFs?

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jhfenton
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by jhfenton » Wed Jan 29, 2020 2:26 pm

mister_sparkle wrote:
Wed Jan 29, 2020 2:11 pm
It's threads like this that make reading and posting here so great, so thanks for the heads-up.

How can we tell if we're able to purchase partial ETF shares? Right now my Trade screen looks the same as it did before.
If you've updated to latest version of the iOS or Android app, and your trade screen looks the same, then I don't think you have it yet.

I do not have it yet. (There was an iOS app update released yesterday, so I had to install the update, but it didn't change anything for me yet.)

They do not appear to have a timeline for fractional share trading on their website. It sounds like they're trying a soft roll-out.

(Edited to fix typo.)
Last edited by jhfenton on Wed Jan 29, 2020 3:24 pm, edited 1 time in total.

LK2012
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by LK2012 » Wed Jan 29, 2020 2:46 pm

According to the Fidelity web site, this is being phased in over the next few weeks. Also, the emphasis seems to be on the mobile app:

https://www.fidelity.com/trading/fractional-shares

"Dollar-based trading is available through the Fidelity mobile app, phasing in over the next few weeks. If it’s not available to you today, please check back soon."

ronin
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Fractional Shares now at Fidelity?

Post by ronin » Wed Jan 29, 2020 4:34 pm

[moved to existing thread - moderator prudent]

Did I read today’s announcement correctly that Fidelity will begin supporting fractional share trades on equities and ETFs?

If so, does this likely pave the way for automatic investing in ETFs similarly to mutual funds based on a dollar amount?

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by whodidntante » Wed Jan 29, 2020 4:42 pm

Are there any fees at all associated with fractional shares? Because we can't pay fees in 2020, you know. :happy

core4portfolio
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by core4portfolio » Wed Jan 29, 2020 4:55 pm

is it have feature like M1 finance for auto balancing ?
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1789
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by 1789 » Wed Jan 29, 2020 4:59 pm

I like this news. Being able to buy ETFs with all cents sounds good to me
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by Explorer » Wed Jan 29, 2020 5:07 pm

I see access to frac trading on my mobile app - WooHoo..

I wish you can have a single order for multiple ETFs by $$ so one click you buy the portfolio.

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by ARoseByAnyOtherName » Wed Jan 29, 2020 5:15 pm

Now that they support fractional shares is there any news of being able to automatically invest in ETFs like you can with mutual funds?

Basically, can I set it to automatically buy $1,000 (or whatever) of VTI every month?

I haven’t looked at the announcement that closely. But I have to imagine this is coming soon, if not as part of this announcement...

Explorer
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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by Explorer » Wed Jan 29, 2020 5:18 pm

ARoseByAnyOtherName wrote:
Wed Jan 29, 2020 5:15 pm
Now that they support fractional shares is there any news of being able to automatically invest in ETFs like you can with mutual funds?

Basically, can I set it to automatically buy $1,000 (or whatever) of VTI every month?

I haven’t looked at the announcement that closely. But I have to imagine this is coming soon, if not as part of this announcement...
Given the roll out to mobile app only at this time, the frac share capability appears to be directly addressing robos and millenials. So.. what you are proposing would be the next logical step allowing purchase into one or more ETFs at a certain AA %

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Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by corp_sharecropper » Wed Jan 29, 2020 7:40 pm

Is there a good explanation of how brokerages manage the back end of fractional shares?

Is it simply that a computer tallies all clients' fractional shares and buys/sells whole shares as necessary, sometimes owning a partial share for the brokerage? Certainly there must be times when someone buys a fraction that puts the entire brokerage some tiny fraction over/under an integer? I can't see a way for this to be implemented without some level of drag/margin/leverage/arbitrage/risk, even if tiny/unmeasurable in the grand scheme of things, just seems like a headache to manage in my brief thinking about it. I guess whatever cost/risk of doing it is just considered "the cost of doing business" and staying competitive. Do they just pretend you own a fraction and have the funds set aside to cover fractional buy/sells to avoid all the complication?

Explorer
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Joined: Thu Oct 13, 2016 7:54 pm

Re: Fidelity lets clients now trade fractional shares of stocks and ETFs

Post by Explorer » Wed Jan 29, 2020 7:58 pm

corp_sharecropper wrote:
Wed Jan 29, 2020 7:40 pm
Is there a good explanation of how brokerages manage the back end of fractional shares?

Is it simply that a computer tallies all clients' fractional shares and buys/sells whole shares as necessary, sometimes owning a partial share for the brokerage? Certainly there must be times when someone buys a fraction that puts the entire brokerage some tiny fraction over/under an integer? I can't see a way for this to be implemented without some level of drag/margin/leverage/arbitrage/risk, even if tiny/unmeasurable in the grand scheme of things, just seems like a headache to manage in my brief thinking about it. I guess whatever cost/risk of doing it is just considered "the cost of doing business" and staying competitive. Do they just pretend you own a fraction and have the funds set aside to cover fractional buy/sells to avoid all the complication?
I don't know if this is much different from reinvestment of dividends/capital gains which typically end up causing fractional share ownership. Many robos have been doing this for years - so I suppose this is routine.

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