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A New Choice for Small Investors: How Fractional Share Trading Changes the Investment Landscape

Fractional share trading is transforming the way retail investors in Taiwan approach investing. As a supplement to full shares (traded in units of 1,000 shares), fractional shares refer to stock holdings of less than 1,000 shares, with a minimum trading unit of 1 share. These small holdings often originate from unfilled buy/sell orders, rapid stock price fluctuations, or during dividend and rights issues.

Before October 26, 2020, fractional shares could only be traded after hours, limiting trading opportunities. Now, investors can participate in the fractional share market during regular trading hours, opening a new window for those with limited capital.

Clear Understanding: The Two Main Operating Periods of Fractional Share Trading

Fractional share trading operates during two periods: during market hours and after hours, each with its own rules and characteristics:

During Market Hours (9:00-13:30): Investors can place orders via electronic trading platforms (brokerage trading platforms). The first matching occurs at 9:10, followed by a collection of auction matches every minute. Transactions follow the “price priority, time priority” principle. Unfilled or partially filled orders during market hours are not automatically carried over; investors need to re-enter orders.

After Hours (13:40-14:30): Orders can be placed via electronic or manual phone orders. A single collection auction occurs at 14:30, following the “price priority, random order for same price” rule. Unfilled orders are automatically canceled and do not carry over to the next day.

Rights and Obligations of Fractional Share Trading

Investors holding fractional shares enjoy many of the same rights as full shareholders. Fractional shares can receive dividends—during dividend distribution, fractional shareholders are entitled to dividends, albeit smaller in amount. Fractional shares can also receive stock dividends—during rights issues, fractional shareholders can opt for cash dividends or sell their fractional holdings.

In terms of trading, the order size for fractional shares cannot exceed 999 shares, and investors can start with as little as NT$1,000. However, considering transaction costs, it’s generally more cost-effective to buy NT$10,000 or more at a time.

Cost Breakdown: Brokerage Fees and Comparisons

The brokerage fee for fractional shares is calculated the same as for full shares, at 0.1425% of the transaction amount. Different brokerages set various minimum fee standards and offer discounts for electronic orders.

For example, buying 200 shares of TSMC (2330.TW, assuming a closing price of NT$1,065):

• Basic fee: 200 × 1065 × 0.1425% = NT$303.53
• With a 50% discount from the broker: NT$303.53 × 50% = NT$151.77

Comparison of major brokerages’ fee plans:

Practical Tips: How to Successfully Trade in the Fractional Share Market

For less popular stocks, fractional trading volume can be limited. Investors should adopt strategic approaches:

Consolidate Small Holdings: If during market hours there is a large sell order for fractional shares, investors can buy additional fractional units to round up to a full share, then sell the full share for better liquidity. For example, if holding 700 shares of Shin Kong (1582.TW), buy an additional 300 shares to reach 1,000 shares, then sell as a full lot.

Extreme Price Strategies After Hours: Since only one auction occurs after hours, following the maximum transaction principle, traders eager to buy can place buy orders at the limit-up price, while those wanting to sell can set the limit-down price to increase the chance of execution.

Balancing Advantages and Challenges

Lower Entry Barrier is the core advantage of fractional share trading. Unlike full shares requiring hundreds of thousands of NT dollars, fractional shares allow investors with limited funds to participate. It enables “testing the waters” with smaller capital, gradually building positions through periodic investments, while maintaining sufficient liquidity for daily needs.

Lower Liquidity is the main drawback. Fractional share trading volume is much lower than full shares, leading to longer matching times. Cost considerations are also important—besides basic fees, fractional trading often involves additional service charges, making the overall cost higher than full shares. Operational restrictions include that fractional shares can only be sold, not bought, and converting fractional shares to full shares involves time restrictions.

An Alternative Small-Amount Investment Path: CFDs (Contracts for Difference)

If concerns about liquidity and costs persist, CFDs offer an alternative. CFD traders only need to deposit margin to participate, without owning the actual stock. For example, with a 5% margin requirement, buying 5 shares of Google via CFD would cost only about $100, compared to $2,000 for full shares.

Most CFD brokers use spreads rather than commissions, providing transparent costs. However, CFDs are settled daily, making them more suitable for short-term speculation; holding positions overnight incurs overnight financing charges. Compared to fractional shares, CFDs are better suited for short-term trading, while fractional shares are more appropriate for long-term investors.

Key Insight: Choosing the Investment Method That Fits You

With technological advances, fractional share trading has become a mainstream investment option for small investors in Taiwan. Compared to traditional full-share trading, fractional shares require less capital, offer flexible position sizing, and provide diverse trading channels. Investors can participate via brokerage platforms, phone orders, and more, significantly lowering barriers to entry.

To profit steadily in the fractional share market, investors need comprehensive knowledge. First, understand your risk tolerance and select targets and strategies aligned with your investment horizon; second, master basic analysis methods to avoid blindly following market sentiment; finally, stay rational, control trading frequency, and ensure long-term profitability. Whether trading during market hours or after hours, the key lies in developing a clear investment plan and executing it strictly.