Fidelity Fractional Shares Agreement: Understanding the Fine Print

Fidelity Investments, one of the largest financial services providers in the world, recently launched its fractional share offering for stocks and exchange-traded funds (ETFs). This allows investors to buy a portion of a share, rather than having to purchase a full share in one transaction. Fractional shares can make investing more accessible to those with limited funds, and provide more flexibility in portfolio management. However, it’s important to understand the details of Fidelity’s fractional shares agreement before diving in.

Minimum Investment

To participate in Fidelity’s fractional shares program, investors must have a Fidelity retail brokerage account and meet Fidelity’s minimum investment requirements. The minimum initial investment for a retail brokerage account is $0, while the minimum investment for a retail account that includes trading privileges is $2,500. For fractional shares, investors must have at least $1 in their account to buy or sell a fraction of a share, and $0.01 is the minimum fraction that can be traded.

Pricing

Fractional shares are typically priced at the current market price of the security at the time of the trade. Fidelity’s fractional shares are no different. However, keep in mind that fractional shares may be subject to market fluctuations just like full shares. The difference is that the value of a fractional share will be a portion of the total value of a full share. For example, if the price of a full share of Amazon is $3,000 and an investor purchases a fractional share worth $1,500, that fractional share would represent half of a full share.

Trading Restrictions

While Fidelity’s fractional shares program does provide flexibility, it’s important to note that there are some restrictions. Fractional shares cannot be traded on a standalone basis, and must be associated with a full share of the same security. This means that if an investor owns a full share of Amazon, they can buy or sell fractional shares of Amazon, but they cannot buy or sell fractional shares of other securities independently.

Additionally, Fidelity may limit the number of fractional shares that can be traded, especially for less liquid securities or during periods of high market volatility. This is to ensure that all investors have fair access to the market, and may result in slower execution times for trades.

Tax Implications

Fractional shares can complicate the tax implications of investing, especially if an investor owns both fractional and full shares of the same security. Fidelity aggregates all of an investor’s shares of a particular security in order to calculate the cost basis and capital gains or losses. This means that when fractional shares are sold, they will be combined with any full shares of the same security that the investor owns when calculating taxes.

In Conclusion

Fidelity’s fractional shares program offers investors new opportunities for investment, but it’s important to understand the program’s fine print before investing. Minimum investment requirements, pricing, trading restrictions, and tax implications are all factors to consider when deciding whether to participate in Fidelity’s fractional shares program. As always, it’s important to consult with a financial advisor before making any investment decisions.