Fractional Shares: Understanding Creation & Benefits
Many investors find themselves in possession of a fractional share at some point in their trading. Here are the basics of fractional shares and how they are created.
Fractional Shares
If you have a fractional share, this means that the share is actually worth less than one normal, full share of stock. In order to calculate the value of the share, you would simply multiply the value of a full share times the percentage of the share that you own.
How They Are Created
Fractional shares can be created when a stock split takes place. Companies will sometimes utilize a stock split in order to raise or lower the value of one share of stock in the marketplace. For example, a company could issue a 3 for 2 stock split. If you had three shares of stock already, you would then get another 1.5 shares from the company in this split.
Rounding
Typically, when you have a fractional share, it is going to work to your benefit. Companies will usually round up to the nearest whole number when they are calculating dividends, voting rights and other things that pertain to the number of shares in the company that you own.
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