How it works
Some brokers hold customer fractional shares as part of larger whole-share positions in the broker’s own name (street name). The broker tracks each customer’s fractional entitlement on internal ledgers; the customer cannot transfer the fractional position to another broker because no standard mechanism exists for cross-broker fractional transfer. Most brokers offering fractional shares also allow fractional reinvestment of dividends and recurring dollar-cost-averaging investments.
Example
An investor with $100 wants exposure to Berkshire Hathaway Class A, trading at $610,000 per share. A whole share is unaffordable. With fractional shares, the investor buys 0.000164 BRK.A shares for $100. The position rises and falls in proportion to BRK.A. If BRK.A is up 10 percent to $671,000, the position is worth $110. Voting and dividend rights typically apply proportionally; some brokers do not pass through voting rights on fractional positions.
Why it matters
Fractional shares democratise access to expensive stocks (Berkshire, Amazon pre-split, NVIDIA pre-split) and make dollar-cost averaging precise. The trade-offs: positions cannot be transferred between brokers, and corporate action handling varies. For long-term diversification with small monthly contributions, fractional shares are transformative. For active traders, the lack of transferability is a real cost; better to size positions to whole-share quantities you can actually move.
