About this "fractional shares" thing, how do I get started?

[HerculeHolmes]

Can anyone give me a quick-start skip-the-manual guide on how to get started in fractional shares? I like the idea of being able to put small sums of money into high-risk investments, but I don't know where to start and the guides I've found on the internet so far are a bit too lengthy and complicated - aimed more at people who know about the world of money rather than laymen like me.

[Seth]

10 minutes ago, HerculeHolmes said:

Can anyone give me a quick-start skip-the-manual guide on how to get started in fractional shares? I like the idea of being able to put small sums of money into high-risk investments, but I don't know where to start and the guides I've found on the internet so far are a bit too lengthy and complicated - aimed more at people who know about the world of money rather than laymen like me.

Have a look at the Trading 212 website, they specialize in fractional shares, I personally don't buy fractional shares but I believe that a fractional share is basically a % of a share, generally the share is broken into 100 units and the minimum you can buy is 1 unit, so for example if the company who's shares are valued at £1.00 or 100p each and you only waned to by 1 unit or 1% of one of their shares it would cost you 1p, 2 units or 2% of a share would cost you 2p and so on.  How it works when owning fractional shares say 0.1% of a company's share when it comes to dividends I have no idea, I'd imagine that you would get a % of the dividend based on the % of a share you own, but you would need to check with somebody far far more knowledgable about it than me, but I do strongly suggest that you  have at  least a quick look at the Trading 212 website and watch some of their videos about buying fractional shares and what they are

[Martlet]

Fractional shares is a thing because a lot of US stocks trade at very high nominal values, so small investors cant buy a whole share.  Online brokers pool many together (and take a slither for thier trouble).  You just trade on £ value you want to invest and the platform allocates amount of share(s) for that value.  That's it, nothing to learn except how to pick winners and avoid losers 

If you want "high risk investment" you might want to look at high growth funds or ETFs rather than chase specific stocks.  Use (not necessarily trade) Hargreaves Landsdown to get information, a lot there easy to digest, though their trading fees are high. 

[SierraWhiskyMike]

On 03/07/2020 at 21:56, Martlet said:

If you want "high risk investment" you might want to look at high growth funds or ETFs rather than chase specific stocks.  Use (not necessarily trade) Hargreaves Landsdown to get information, a lot there easy to digest, though their trading fees are high. 

I agree. If you're looking for investments generally I'd say you're better off with ETFs than lots of fractionals. They're basically like owning a bucket of fractionals anyway and you'll get some diversification.

I'm a fan of index/tracker ETFs because they're cheap on fund fees and historically perform quite well, depending on the index used. 

You can buy a lot of ETFs through trading 212 and avoid charges if that's your thing in an ISA or whatever. 

Have a look at the "money unshackled" YouTube channel. They're not always on point (especially when they overlooked PMs but they've admitted to that mistake now) but the financial education is brilliant.

[HerculeHolmes]

17 hours ago, SierraWhiskyMike said:

I agree. If you're looking for investments generally I'd say you're better off with ETFs than lots of fractionals. They're basically like owning a bucket of fractionals anyway and you'll get some diversification.

I'm a fan of index/tracker ETFs because they're cheap on fund fees and historically perform quite well, depending on the index used. 

You can buy a lot of ETFs through trading 212 and avoid charges if that's your thing in an ISA or whatever. 

Have a look at the "money unshackled" YouTube channel. They're not always on point (especially when they overlooked PMs but they've admitted to that mistake now) but the financial education is brilliant.

I put most of my money into Vanguard (into a 100% equity ISA ETF) but I wanted put a small amount of money into investing in specific companies that I like the sound of, which is why I got interested in the Trading212 platform - it looks very simple and for the most part you just click & buy. BUT after putting in £200 on the weekend I am already thinking I would be wise to get my money out of there sharpish after reading through the comments on a Reddit page:

https://www.reddit.com/r/StockMarket/comments/7cqloj/trading212_scam/

It looks like in 2017, Trading 212 were exposed for a massive scam. One guy invested $500,000 and Trading 212 simply gave him the middle-finger and refused to give him his money.

[SierraWhiskyMike]

6 minutes ago, HerculeHolmes said:

I put most of my money into Vanguard (into a 100% equity ISA ETF) but I wanted put a small amount of money into investing in specific companies that I like the sound of, which is why I got interested in the Trading212 platform - it looks very simple and for the most part you just click & buy. BUT after putting in £200 on the weekend I am already thinking I would be wise to get my money out of there sharpish after reading through the comments on a Reddit page:

https://www.reddit.com/r/StockMarket/comments/7cqloj/trading212_scam/

It looks like in 2017, Trading 212 were exposed for a massive scam. One guy invested $500,000 and Trading 212 simply gave him the middle-finger and refused to give him his money.

Yeah fractional trading means that instead of you being registered on the (now digital) share certificate, the platform is registered as the owner and acts as a trustee for your holdings, with you as beneficiary. 

This can be a problem because trusts for this particular reason are only as good as the ability of the beneficiary to enforce it's will on the trustee, who has the legal ownership.

In a trust, the trustee merely has to act reasonably and in good faith for the benefit of the trust. If they don't agree with your plan to suddenly pull out of the market, I guess in theory they can refuse.

I don't think £200 is that big a risk to be honest, whereas pulling £500k would cause stock price movement due to sheer volume of sales and therefore be bad for the other people's money held in trust. At that point, you need a court to intervene and decide what's just. 

[Martlet]

1 hour ago, HerculeHolmes said:

I put most of my money into Vanguard (into a 100% equity ISA ETF) but I wanted put a small amount of money into investing in specific companies that I like the sound of, which is why I got interested in the Trading212 platform - it looks very simple and for the most part you just click & buy. BUT after putting in £200 on the weekend I am already thinking I would be wise to get my money out of there sharpish after reading through the comments on a Reddit page:

https://www.reddit.com/r/StockMarket/comments/7cqloj/trading212_scam/

It looks like in 2017, Trading 212 were exposed for a massive scam. One guy invested $500,000 and Trading 212 simply gave him the middle-finger and refused to give him his money.

I'd apply due diligence when reading Reddit. Trading212 are regulated, and the main issue in that thread were related to unregulate crypto (BCH).  And i'd be very sceptical someone with 500k would put it all through a web trading app rather than a money manager/broker. 

[HerculeHolmes]

52 minutes ago, Martlet said:

I'd apply due diligence when reading Reddit. Trading212 are regulated, and the main issue in that thread were related to unregulate crypto (BCH).  And i'd be very sceptical someone with 500k would put it all through a web trading app rather than a money manager/broker. 

I'm pretty streetwise (internet-wise?) these days about YouTubers are Redditors, but the comments sound authentic to me; these don't sound like posers, they sound like people who understand how investments and investment managers work and some of them are talking about lawsuits.

£200 isn't a big deal but I was tempted to drip-feed in maybe £2000 over the course of a year or two. I don't dare risk it if Trading 212 are that shady.

[SierraWhiskyMike]

26 minutes ago, HerculeHolmes said:

£200 isn't a big deal but I was tempted to drip-feed in maybe £2000 over the course of a year or two. I don't dare risk it if Trading 212 are that shady.

I'm going with Martlet on this one (which should reassure you) for a few reasons.

First, the complaint quoted on reddit is that the system was unable to process mass sellout of orders as Bitcoin price plummeted. Back in 2017, this was a tech issue for the T212 platform. BTC is super-hyped and in 2017 if you remember people were going crazy for it, day trading like no-one's business. This means that traffic probably just overwhelmed the service. Hopefully this will be remedied since but otherwise it's a concern common to all platforms where shares change hands that frequently. 

Secondly, in English and Welsh law (probably also Scots law?) there's very little protection for pure economic loss. It looks like T212 offered to pay holders 10% of the loss as an apology for the delay in selling due to system crashing for BTC sell orders. That's actually reassuring because they don't have to offer anything.

Thirdly, no accusations were made that the platform didn't hold the assets in trust, merely that it didn't work as the beneficiaries (acct holders) had hoped. 

In conclusion, it doesn't look like a scam to me, it looks like too many orders overwhelming the bandwidth of the 2017 version of the platform and people getting burnt by taking obscene risks on a super-volatile asset and day trading. 

*I strongly recommend that you don't try day trading.* It's possible to make good money on it - possible but not likely - and there's no way a few forum posts will be able to educate you enough to succeed on it. People seriously read up on that stuff and still a majority get it wrong. It's also not worth doing for the vast majority of us who don't have £5k+ to put into each company due to fine margins and stamp duty.

If you're just looking at investing (no less than 12 months, ideally no less than 5 years) in a few cool companies, I wouldn't lose sleep over your choice of trading 212. Chances are, your profit from growth of a "good" company in the long term won't be significantly hit by selling a day later due to a temporary service outage anyway, even if they haven't fixed it.

[HerculeHolmes]

Thankyou Mike, that's a smart and insightful explanation. I'm still nervous of Trading 212 but I'll stick with it.