Wealthsimple Trade, Canada’s first commission-free trading app, continues to evolve and introduce more features.
Recently, it introduced the premium subscription that supports real-time quotes and instant deposit of up to $1,000 for just $3/month.
Effective July 2021, it has rolled out fractional shares trading on a limited number of stocks to all its users.
In this post, you’ll learn how to trade fractional shares in Canada on Wealthsimple Trade, its current limitations, alternatives and get answers to some of your other questions.
Fractional shares are a portion or slice of a full stock.
It could be a result of dividend reinvestment plans (DRIPs), stock splits or actual trading of fractional shares when supported by a brokerage.
They provide an opportunity to invest in stocks of companies without having to buy a full share.
Take Amazon for example. The stock currently trades around USD3,600. That price puts it beyond the reach of many retail investors.
Fractional share investing solves this problem for the average investor. With as little as $1, you can invest in a fraction of the company and gradually build up your holding.
If you’ve always wanted to diversify your portfolio by holding the stocks of larger securities directly, fractional shares are a great way to do that.
How Fractional Trading Works on Wealthsimple Trade
With fractional shares purchase, you enter the dollar amount of the stock you want to buy instead of the number of units.
At Wealthsimple Trade, fractional trades are currently executed at the end of the day.
So you’re presented with an estimated quantity of stocks when you place “fractional buy” orders or estimated dollar proceeds for “fractional sell” orders
Wealthsimple Trade launched the fractional trading feature with only 14 stocks: 4 Canadian and 10 U.S. stocks.
Canadian Stocks: Shopify, Royal Bank of Canada, Toronto Dominion Bank and Canadian National Railway Co.
U.S. Stocks: AirBnb, Amazon, Apple, Facebook, Google, Microsoft, Tesla, Netflix, Coinbase, Nvidia.
It is safe to assume that more stocks will be added in the coming weeks or months.
You can confirm the stocks with fractional trading support by using the search function within the app.
Eligible stocks will have a symbol that looks like a pie chart next to their name. See the picture below.
Trading fractional shares on Wealthsimple Trade is as simple and straightforward as trading whole shares.
All the steps are intuitive with prompts and guides along the way.
Here are the steps to buy fractional shares:
- Search for the stock you want to buy
- Click the buy button
- Choose the account where you want to hold the stock
- On the next screen, change the order type to “Fractional Buy” from the default “Market Buy”
- Enter the dollar amount you want to invest and the estimated quantity is displayed
- Click continue to go to the purchase confirmation screen
- Review the trade and click “confirm order” if everything looks good
- The order is sent!
The steps for selling fractional shares on the Trade app is similar to the ones for placing fractional buy orders.
Simply select “fractional sell” instead of the default “market sell” order type. Next enter the number of shares you wish to sell and follow the instructions.
You can check the status of your order or cancel it by going to Activity from the profile menu.
You’ll find the order under the Pending section. Select it to view the details and click “cancel order” if you no longer wish to place the trade.
So here are some of the current limitations or drawback of trading fractional shares on Wealthsimple Trade app.
Limited stocks supported
You probably guessed this. It would be great to have access to more stocks to buy in fractions. But you’re currently limited to just 14 stocks.
Fortunately, we can expect Wealthsimple to gradually increase the number of stocks with fractional trading support over time.
Trades are not real-time
Wealthsimple Trade waits till the end of the day to aggregate all the buy and sell orders into full shares.
This means the actual number of shares you get will almost always be different from the estimated quantity you see when you placed the trade.
The difference, however, should not be material most times. Unless there’s a big price movement (common with Tesla for example) or exchange rate movement when trading US stocks.
On the other hand, Robinhood, the popular stock trading app available to U.S. residents, supports real-time execution of fractional trades.
Hopefully, real-time execution during market hours will be added in the future.
Related: Robinhood Canada Alternatives
Before fractional shares, investors looking to hold a diversified portfolio that includes some of the higher priced stocks had several options.
Some of these include:
Exchange Traded Funds (ETFs)
You get access to a diversified fund with a single buy. With several options across sectors, geography, investing strategy and so on, investors have a large pool of ETFs that suite their investing needs.
Asset allocation ETFs takes this further by combining securities across asset classes. For example, you can start building a portfolio with 80% equity and 20% fixed income with periodic purchase of VGRO or XGRO.
With asset allocation ETFs, you may never have to rebalance your portfolio if you invest solely using them.
Robo-advisors are a quick and easy way to start investing when you have little money.
All the investing decisions are done on your behalf. Just contribute a dollar amount to the account regularly and your funds are invested.
Though they traditional have higher management fees, they let you own a slice of a bigger portfolio of stocks that includes several blue-chip stocks.
The tax treatment is the same whether you’re investing in whole shares or fractional shares.
If you do fractional trading in a non-registered or taxable account, you’ll still have to track the ACB and account for the capital gains or losses when you sell.
In registered accounts, they’ll grow on a tax-free or tax-deferred basis.
When dividends are declared and paid on the stocks you own, the dividend you’re entitled to will be paid based on the fraction you own.
For example, if you bought 0.5 units of Apple shares and a dividend of $2 were paid, you’ll receive $1 which is 50% of the dividend.
In most instances, No. You’ll get voting rights on the whole shares you own, but not on the fractions.
This makes sense because technically, your brokerage buys a share and slices it up into fractional shares for several investors.
For example, as far as Amazon is concerned, each stock is owned by one investor (your brokerage or a related party) and not hundreds of different Wealthsimple Trade users.
It is currently unclear how it’ll work with Wealthsimple Trade, but it is safe to assume that you won’t get voting rights on your 0.001 units of Amazon’s stock.
You can trade fractional shares in all the 3 account types supported by Wealthsimple Trade app. They include TFSA, RRSP and personal or taxable account.
So before you decide to start fractional shares, here are a few things to consider.
a. They are not liquid.
Compared to whole stocks, fractional shares may not be as liquid. This is because you can only trade them through your brokerage and not on the open market.
b. They are non-transferable
You won’t be able to transfer the shares to another brokerage. For example, if you decide to transfer your TFSA to Questrade today, you’ll need to sell your fractional shares since it is not supported yet.
c. You don’t get voting rights
With the introduction of fractional share trading on the Trade app, Wealthsimple is making this available to a larger number of investors in Canada.
Before now, you could only trade fractional shares through Interactive Brokers. But the brokerage isn’t suitable for the average investors. It is more geared towards active traders.
You can get started with Wealthsimple Trade today and get 2 free stocks of up to $4,500.
Learn more about the Wealthsimple Trade promotion here.