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Can You Buy Fractional Shares on TD Ameritrade?

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Written by Timothy Sykes
Updated 9/8/2023 9 min read

* Written by AI, Edited by Humans

Can you buy fractional shares on TD Ameritrade? No, not yet. But hold tight, because with TD Ameritrade’s merger into Charles Schwab by the end of 2023, things are about to change.

Currently, TD Ameritrade doesn’t allow purchases of fractional shares. But here’s the thing: Charles Schwab does. This means that once the full merger with TD Ameritrade is completed, fractional share buying will be on the table for TD Ameritrade account holders.

Before diving into the nitty-gritty of TD Ameritrade and the exciting world of fractional shares, let’s break down what these shares are, and why the merger with Charles Schwab can open new doors for your portfolio.

What Are Fractional Shares?

Fractional shares are exactly what they sound like: pieces of a stock. Instead of buying one whole share, you can purchase a fraction of it. For beginners and clients with a smaller amount of money to invest, fractional shares can be a way to dip your toes into the market.

The ability to buy fractional shares means that barriers are lowered. You don’t need the full stock price to take part in trading some of the big players in the market. This brings investing within reach of many more people, providing a feature that could change the way you approach your trades.

Understanding Fractional Shares

Understanding fractional shares is not just about the shares themselves; it’s about grasping the wider market. Whether you’re dealing with stocks, bonds, or ETFs, understanding fractional shares is about recognizing the broader products and tools in play. Research is key here, and utilizing trading platforms with solid educational resources and customer service can give you an edge. Information on securities, futures, and commodities is vital. Assets like the thinkorswim platform offer valuable material to deepen your insight. Be aware of commissions, potential loss, and other elements like principal and IRA accounts. In the world of fractional shares, others’ reviews and experiences can also guide you.

Dividend Reinvestment Plans

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Dividend Reinvestment Plans (DRIPs) are programs offered by companies that allow you to reinvest dividends into fractional shares. It’s a tool that encourages investing those dividends back into stocks without additional commission fees. It’s an appealing option for those looking to steadily grow their portfolio.

Stock Splits

Stock splits can result in fractional shares, and understanding this part of the market can be beneficial. For instance, if a company splits its stock 3-for-2 and you own an odd number of shares, you’ll end up with fractional shares. It’s not a goal but rather a result of the trading process.

Mergers and Acquisitions

In mergers and acquisitions, fractional shares can come into play if the merging companies’ share exchange ratio doesn’t add up neatly. Investors might end up with fractional shares in the newly merged company. It’s part of the process, not something to aim for, but something to understand in the business landscape.

Can You Buy Fractional Shares on TD Ameritrade?

TD Ameritrade’s platform currently doesn’t offer the option to buy fractional shares. However, with the merger into Charles Schwab, this feature is coming. By the end of 2023, TD Ameritrade account holders will have access to fractional share trading.

While you wait for the merger’s completion, understanding fractional shares and strategizing around them can prepare you for a new investment horizon. It’s about seeing the bigger picture and planning ahead, adapting your strategies to new tools and features.

TD Ameritrade Alternatives for Buying Fractional Shares

When it comes to buying fractional shares, TD Ameritrade currently falls short. However, alternatives are abundant, each with unique content and features tailored to different investors. If ETFs or specific bonds are your focus, platforms that prioritize these products and offer in-depth research tools will be your allies. From customer-friendly interfaces like eToro to advanced trading platforms like Interactive Brokers, the alternatives provide a variety of resources. Consider aspects like customer service, commissions on trades, and the education material available on platforms like Nasdaq. Evaluate the offerings, whether they include commodities, futures, or unique trading platforms like thinkorswim. Assess accounts, IRAs, and the principal investment to match the service to your trading needs and learn from others’ reviews.

When exploring alternatives to TD Ameritrade for buying fractional shares, one must consider the various platforms available. Thinkorswim is a popular choice among traders, offering a range of tools and features tailored to individual needs. Comparing platforms like Thinkorswim with others such as Webull can provide valuable insights into their respective strengths and weaknesses. For a comprehensive comparison between Thinkorswim and other platforms, you can read this in-depth analysis of Thinkorswim vs. Webull.

Fidelity Investments

Fidelity Investments offers fractional shares trading on its platform. Beginners and experienced traders alike can take advantage of this feature to diversify their portfolios without committing to full shares.

Interactive Brokers

Interactive Brokers provides the ability to buy fractional shares, allowing a broader variety of investments. It’s a valuable feature for investors looking to enter markets they may not have the funds to buy whole shares in.

Robinhood

The Robinhood app has brought fractional shares to the masses. With as little as $1, users can purchase a piece of a stock, allowing flexibility and access to potentially costly stocks.

Webull

Like Robinhood, Webull offers fractional share purchasing. It’s a platform geared towards beginner traders, giving them the ability to engage with the market in small, manageable amounts.

 

Webull offers other beginner-friendly features, like paper trading, which allows users to practice trading without risking real money. This feature, combined with the ability to trade fractional shares, makes Webull an attractive option for many. If you’re interested in exploring Webull’s paper trading feature further, you can learn more about Webull’s paper trading here.

eToro

eToro focuses on making trading accessible, and fractional shares play a part in that. It’s another platform where you can start investing with smaller sums, making it beginner-friendly.

Benefits of Fractional Shares

Fractional shares open doors. They allow you to build a diversified portfolio without needing substantial capital. Investors can start small, invest in companies they believe in, and potentially see gains without the significant risk or investment in whole shares.

However, not all brokers offer this feature. With the TD Ameritrade merger into Charles Schwab, new possibilities are on the horizon, bringing this advantageous investment option into the hands of more traders.

Fractional shares offer an opportunity to engage with the market without committing to full share orders. This flexibility allows investors to explore various trading strategies and platforms. One such platform is TradeStation, known for its robust trading tools and user-friendly interface. Whether you’re a beginner or an experienced trader, understanding the nuances of different platforms can enhance your trading experience. For a detailed comparison between TradeStation and other platforms, you may find this comparison between TradeStation and Thinkorswim helpful.

Disadvantages of Fractional Shares

Fractional shares aren’t without drawbacks. Some brokerage platforms don’t allow you to transfer fractional shares to another broker. The selling process might be more cumbersome, and not all customers see them as a viable option.

Being aware of the disadvantages is key to making informed decisions. Fractional shares are a tool, but like all tools, they must be used wisely.

They aren’t a silver bullet for your trading plan — but fractional shares are some of the many topics you should learn as part of your trading education!

Trading isn’t rocket science. It’s a skill you build and work on like any other. Trading has changed my life, and I think this way of life should be open to more people…

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Do you use fractional shares in your trading strategy? Let me know in the comments — I love hearing from my readers!

Frequently Asked Questions

How does TD Ameritrade handle stock splits for fractional shares?

TD Ameritrade doesn’t currently allow buying fractional shares, so the question of handling stock splits for fractional shares doesn’t apply. However, post-merger with Charles Schwab, policies regarding this will align with Schwab’s practices.

Can I buy fractional shares in the US?

Yes, you can buy fractional shares in the US through various brokerage platforms. This trading feature is becoming increasingly popular, providing a way for more people to access the stock market.

Is it OK to buy fractional shares?

Buying fractional shares is not just OK, it’s a strategic way to diversify your portfolio. By opening doors to invest in companies that might be out of reach otherwise, fractional shares broaden your trading options.

Are fractional shares harder to sell?

In some cases, fractional shares can be harder to sell. Not all brokers offer the option to sell fractional shares, and transferring them might present challenges. But with the right knowledge and platform, trading fractional shares can be a rewarding strategy.

 


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Author card Timothy Sykes picture

Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

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* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”