Europe is slowly catching on to the fractional share trading revolution

Key Takeaway

• Fractional share trading is an essential tool for US investors
• Innovative brokers in Europe are looking to tap retail demand
• Regulators in UK are increasingly recognizing the benefits

Fractional share trading has become central to equities investing, particularly in the United States. This option allows investors to buy a small piece, or a “fraction”, of a share, instead of having to buy a whole share. For many people, this makes investing more affordable and accessible, especially for big-name stocks like Amazon, Tesla, or Google that might cost hundreds or thousands of dollars per share. The unique features of the US market have made fractional trading an essential option for investors, but it is yet to take off in Europe.

Fractional share trading first emerged in the early 2000s through Dividend Reinvestment Plans (DRIPs). Companies and brokers allowed investors to reinvest dividends automatically, often resulting in fractional shares, since dividend amounts might not equate to whole shares value. While this was not a direct way to buy fractional shares, it introduced the idea that stocks could be owned in partial amounts. DRIPs were especially popular for investors looking to reinvest dividends and grow their holdings without needing significant additional capital.

The growth of automated investment platforms, and neo-broker firms in the 2010s contributed to the rise of fractionals as an investment option. These firms widened participation in the equities markets by targeting new investors. User-friendly mobile phone apps and commission-free trading allowed individuals to start investing with only a few dollars. For such investors, fractionals became the obvious way to include popular companies in their portfolios, as the cost of a single share would otherwise put them entirely out of reach. The expansion of retail trading during the COVID-19 pandemic cemented fractional share trading as a core offering for US brokers, as large numbers of new individual investors flocked to the equities markets.

Innovative brokers, regulators slowly responding to European clients

Fractional trading is available in the UK and Europe, but it’s still a newer concept and less common than in the US. This slower adoption is largely due to differences in culture, investment behaviours, and market rules. In Europe, investors are generally conservative, focusing on cash savings, bonds, or real estate rather than the stock markets. This cautious approach means there is less demand for high-priced, growth-focused stocks. European stock markets simply tend to have fewer high-priced stocks compared to the US. This means that there is less incentive for fractional shares, as the prices of whole stocks tend to be more affordable.

Nevertheless, some of the same factors that have made fractionals popular in the US are also present in Europe. There is also a growing pool of small-scale investors seeking easy access to stocks, and there is also a group of innovative new broker firms looking to service this investor base. Regulators are increasingly recognizing the benefits that fractional trading can offer to individual investors. For example, in September the UK HMRC UK lifted a ban on fractional share holdings in tax-free Individual Savings Accounts (ISAs). This demonstrates the increasing appeal of fractionals, both for investing in UK and Europe, and as a vehicle for accessing US-listed firms.

Fractional share trading has revolutionized the way people invest by making high-priced stocks more accessible to everyone, regardless of how much money they have to invest. In the US, it has become a popular feature, especially among young investors, and has expanded the number of people who participate in the stock market. In Europe, fractional trading is growing at a slower pace, influenced by different investment habits and market structures. As more European brokers offer fractional shares, this option may become a more mainstream way for young people to start building wealth and participating in the global stock market.