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 Tesla for example. The stock currently trades around USD3181. That price puts it beyond the reach of some 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. But it has now grown the list of supported stocks to over 2,000.
Canadian Stocks: Shopify, Royal Bank of Canada, Toronto Dominion Bank, Fortis, Suncor, Canadian National Railway Co. and so on
U.S. Stocks: AirBnb, Amazon, Apple, Facebook, Google, Microsoft, Tesla, Netflix, Coinbase, Nvidia, Square and many other stocks including ETFs.
It is safe to assume that more stocks will be added in the future.
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:
- Sign-up for Wealthsimple Trade if you don’t have an account yet. Get $25 bonus after trading $150 using this link.
- 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.
Here are some of the major benefits of investing through Wealthsimple fractional shares:
1. Exposure to Big Companies
Wealthsimple Trade exposes you to over 2,000 supported Canadian and US stocks owned by big companies including Amazon, Alphabet, Apple, Shopify, Facebook, RBC and many other large companies.
With fractional shares, you don’t need to save up for months before getting exposure to the same returns as investors with larger capital.
2. Minimum Investment
Minimum investment is no longer a barrier for low net worth Canadian investors with Wealthsimple fractional shares. You can start investing with as little as $1 in your favourite companies in Canada or the US.
Generally, investing with a low amount helps you diversify your portfolio while avoiding the risk of full shares.
3. Ease of Diversification
Wealthsimple fractional shares allow you to easily diversify your portfolio by buying the shares of different stocks within your budget.
In addition to gaining broader exposure from big companies, diversification helps you minimize risk over the failure of a single stock.
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. The feature started with support for just 14 stocks but now supports 2,000.
We can expect Wealthsimple to gradually increase the number of stocks with fractional trading support over time.
And the stocks currently supported are some of the most popular and most traded stocks available in Canada and US.
So this isn’t a drawback for most people.
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.
Most brokers, such as Wealthsimple Trade, don’t allow the transfer of fractional shares to another broker. You may have to sell your fractional shares first or move only your complete shares in order to transfer your account to another brokerage.
Sure! Owing fractional shares help you minimize risk and diversify your portfolio within your budget. This means the failure of a single stock will not be your problem as you are covered by several shares.
Fractional shares also expose you to big companies with a consistent return on investment that you wouldn’t otherwise qualify for because of their expensive share prices.
There are no Questrade fractional shares as we have Wealthsimple fractional shares. You can only buy fractional shares on Questrade indirectly through ETFs. Fortunately, Questrade doesn’t charge commissions on ETF purchases.
Questrade doesn’t have fractional shares at the moment. Also, there’s no official statement from Questrade on when it will introduce fractional shares.
With the exception of Interactive Brokers that is best for investors with large accounts or active traders, Wealthsimple Trade is the only available broker for trading fractional shares in Canada.
Flahmingo is another broker that is launching soon with support for fractional investing.
The price of fractional shares is the actual price of whatever company you want to invest in times the fraction of the share you wish to own.
For example, your fractional shares will cost $15 if you decide to buy 15% of one share of a company trading at $100.
Of course, you won’t have to work out this calculation in your head each time you want to buy a fractional share. Usually, you simply specify the dollar amount you want rather than the percentage.
Wealthsimple Trade lets you specify the exact amount you want to buy. Meaning, you can choose to buy $1 worth of Amazon share or $500 worth. It’s all up to you.
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
Unlike full shares, fractional shares restrict your voting right. This means you can’t directly influenced the decisions of the companies you invest in.
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 or use the link below to get a bonus of 25 bonus after trading at least $150.
Learn more about the Wealthsimple Trade promotion here.