
Fractional Shares - ajonnav
https://blog.robinhood.com/news/2019/12/12/fractional-shares-and-more-new-ways-to-invest
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AcerbicZero
Ah, shares of shares. Through Robinhood no less. Sounds like a great plan for
the platform which has had how many comically massive mistakes over the past
few months? Are they going to let r/wsb leverage these 100x as well?

Don't get me wrong, I love some of what they're doing....I just don't trust
them with my money.

~~~
bob1029
I've been with Robinhood for over 3 years and I have had zero issues with my
portfolio or any features around managing my account day-to-day. The only
thing that tripped me up was the transition from Apex to their own clearing
house, so I had some extra paperwork to file w/ the IRS during that transition
year.

I see a lot of people saying things like "I don't trust Robinhood with my
money". I am curious what scenario you see unfolding with Robinhood that could
result in loss of your assets. Especially scenarios impacting Robinhood
uniquely. Are you aware that Robinhood, as well as virtually every other
brokerage in America, provides SIPC insurance up to 500K USD on all (non-
crypto) investment accounts? This is on-par with the same kind of protections
you get with any FDIC-insured checking or savings account. In order to even
qualify for this kind of insurance, Robinhood had to essentially sell its soul
to the various auditors and regulators. Regulations around these kinds of
businesses are incredibly stringent. You would probably feel a lot more
comfortable with any arbitrary brokerage if you had to sit through one of
their audits, or were simply made aware of how extensive it is.

There is certainly a lot of "controversy" around Robinhood in the press lately
(surely no competitor would stand to gain from running hit pieces against a
zero commission broker), but from a purely academic standpoint, it is just
noise and doesn't impact the ability of the firm to carry out its fiduciary
duties in a reliable and consistent manner.

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kelnos
Not the parent you're replying to, but I don't think I'd say I wouldn't trust
Robinhood with my money. As you say, they're a SIPC-insured, regulated entity.

What I _would_ say is that I just don't trust Robinhood as a company. They
feel scummy to me, and their marketing and UX pushes practices that I would
not consider good investment advice. I can only assume that pushing frequent
trading (and poorly-described options trading) on unsophisticated investors
makes more money for them. But it's likely at the expense of those investors.
Even if I "know better" and could just take advantage of the platform as-is, I
don't care to support that behavior.

Take that and pile that on top of -- for example -- their misleading and
factually incorrect announcement about their quickly-pulled cash management
product last year... yeah, no thanks, I'll pass.

~~~
wefarrell
Agreed. They've adopted the addictive UX patterns of other applications, which
is irresponsible for an investment platform. It encourages gambling and making
poor trading choices.

Push notifications are a prime example of this. They encourage users to act on
short term news rather company fundamentals, which is a dangerous mindset for
novice investors. Fortunately for them they've been operating solely during
favorable market conditions but when the market does crash I fully expect them
to face backlash.

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nradov
The whole idea of "shares" is a pointless legacy concept. What really matters
is the fraction of the company you own. Back when trading was conducted using
physical paper stock certificates it made sense to have discrete individual
shares but the concept has now outlived its usefulness. In the future it would
make more sense to just say, for example, that you can invest $12345.67 to
purchase 0.0000000058% of company XYZ.

~~~
valdiorn
you are very wrong on this. Shares still matter very much, for reasons of
legal ownership (each share has a value assigned to it, and can be sold as a
discrete entity, a fraction of something does not), voting and share priority
rules (who gets paid first in the event of bankruptcy) and when dealing with
dilution, new issue and stock splits.

The entire legal system around equity investment is built around these
concepts, and while you might take a different approach to the whole thing if
you could "do a full re-write of the codebase", that's not really how laws
work. There's also the fact that the same or very similar rules are applied
worldwide, allowing like-for-like laws to apply cross borders. A Chinese share
can be described by US laws. Do you know how hard it would be to toss all that
global legal framework out and replace it with something else?

And you've not really explained why you think your system is better, either.
I'd say the discrete units of shares that make ownership laws simpler are
worth the hassle, on their own.

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mushufasa
FYI, Folio has been offering fractional shares for over a decade. They're
terrible at marketing and don't have as slick an app, but they control their
full stack down to the DTCC. They cover their traces in patents, so I'm not
sure Robinhood is doing the same thing as Folio has battle-tested
[https://www.folioinvesting.com/folioinvesting/brokerage-
feat...](https://www.folioinvesting.com/folioinvesting/brokerage-
features/dollar-based-investing-and-fractional-shares/)

(I do not work for Folio)

~~~
Ambele
M1 Finance already has fractional shares too. They're newer than Robinhood but
they're built to be more of a long-term investing platform. Robinhood's UI
feels more like a gambling platform to trade hourly on IMO. M1's "Pies"
feature is very compelling. [https://www.m1finance.com/how-it-
works/invest/pies](https://www.m1finance.com/how-it-works/invest/pies)

(I do not work for either. I've used Robinhood for 4 years.)

~~~
awinder
Problem that m1 is going to have imo now is the once a day trading window. The
value proposition for this market has seriously changed with the big player
move to free trades, and fractional shares are a good wedge since the bigger
players don’t have that. But now m1 is a smaller player with more restrictions
than m1, and it’s going to be tough.

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Animats
Do you really own anything, or are you just lending money to Robinhood? Does
your fractional buy get reported to the transfer agent for the stock? Do you
get the annual report? Voting rights?

~~~
grey-area
Most retail investors don’t want an annual report or voting rights, nor do
they mind if they own the share if the asset they buy tracks it sufficiently
well.

~~~
kick
It's still necessary information to know, regardless of what retail investors
want. If they were up front about it, it wouldn't matter, but they don't seem
to be.

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alphabettsy
This isn’t really a new thing, DRIPs have had this forever, but nice to see it
available especially when looking at purchases like AMZN where maybe you can
only afford purchase 2.75 shares or something.

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Gunax
I don't quite understand the appeal of investing via phone app. Investing my
life savings (any any amount really) is one of the few things I would
absolutely _not_ want to do on a phone touchscreen.

When I heard of Robinhood I thought it would fail for sure... I guess that
shows how much I can predict startup success.

~~~
bransonf
I don’t use Robinhood anymore, but it’s definitely had an effect on retail
brokerages. Foremost, it has attracted a younger crowd than most other
brokerages have been able to.

The $0 commission is now pretty universal, and most brokerages are pushing
better mobile apps. I don’t really trade from my phone, but you have to admit
it’s convenient for when you’re not always near a desktop.

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tempsy
I'm really curious if this is a legitimate growth driver for brokerages and
what % of trading volume is represented by a buyer looking to buy < 1 share in
a certain company.

It feels very incremental to me.

It also feels like a feature that is representative of something that would
only happen at the "top" of the market.

~~~
crazygringo
Actually I think this is huge, not for existing investors but precisely for
people who _aren 't_.

For a teenager who wants to invest $100 to "dip their toes in" when a share of
Amazon is over $1,700?!?! And Google over $1,300?

Back in the days when stock regularly split it wasn't a big issue. But now
that a bunch of companies think it's somehow unfashionable to split their
stock (e.g. Amazon and Google), all this does is exclude smaller investors.
Fractional shares solves this problem.

A single share of stock shouldn't cost more than a MacBook, sheesh.

~~~
skybrian
Do we want to encourage teenagers to buy stock in individual companies? Index
funds I could see.

~~~
tempsy
Why not?

Mainstream personal finance advice is pitiful.

There's wide consensus that ETFs are a bubble. On the other hand, the notion
that buying an individual stock is equivalent to gambling is nonsense.

~~~
throwaway34241
Can you expand on how index ETFs are a bubble? You say that there's wide
consensus, but when I researched it the consensus seemed to be that indexing
was the right strategy for most people (and even sophisticated investors like
Warren Buffett have instructed his trusts to use an indexing approach).

Beating the index is a zero-sum game, for every winner there must be a loser.
Of course you can make educated choices based on the fundamentals but the same
is true for sports betting too. Unlike sports betting, you are directly
competing against a large number of pretty smart people who play this zero-sum
game as a full time job. And some of them even have inside information.

Not that it's impossible to win of course. I can easily imagine someone with
deep expertise in a certain area having a key insight about a specific company
that others don't, or someone who analyzes company balance sheets and business
fundamentals to come up with an independent valuation being above-average at
that. It's hard to imagine that either of these groups represent the average
person who will trade fractional shares on Robin Hood though.

~~~
tempsy
If everyone just buys the index, then the underlying stocks that make up the
index are propped up in a way that wouldn't be the case if that individual
stock was not a part of said index.

(This is not hypothetical it is actually happening)

~~~
throwaway34241
The idea with index investing is usually to buy a total stock market index.
The whole stock market is in the index, so saying the index is in a bubble is
basically the same as saying the stock market itself is in a bubble.

Which could be, but isn't an argument for buying individual stocks instead of
the index, since that doesn't avoid the problem.

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tinco
Half a decade ago I researched starting a fractional trading platform, and I
gave up on the idea because I decided it was illegal.

Now in this thread people are saying multiple such platforms exist. Did I make
a mistake or get something wrong? Or are they applying some kind of
workaround? I can't remember why I thought it wasn't allowed.

~~~
chii
> I decided it was illegal.

how did you somehow decide (unilaterally) it is illegal?

~~~
tinco
When you are alone, then any decision you make is unilateral. Making a
decision is quite easy, you just gather information until you feel your
argument is well supported, and then you assume your theory is correct and act
accordingly.

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Ambele
Many investors have been switching from Robinhood to M1 Finance but maybe this
announcement is intended to slow the flow.

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caleb-allen
I heard Robin Hood earns revenue by operating a trading dark pool. Is this
true? And if so, wouldn't using Robinhood be like jumping into a shark tank?

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chanchar
Here's hoping this prompts Schwab to do the same. They've already made a
public statement saying it would be in the works.

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zymhan
So, what is the actual "vehicle" with which the shares will be purchased?

And is this something that exists outside of Robinhood?

~~~
manacit
It exists outside of Robinhood:

\- Sofi: [https://www.sofi.com/invest/fractional-
shares/](https://www.sofi.com/invest/fractional-shares/)

\- Schwab: [https://www.wsj.com/articles/schwab-in-bid-for-younger-
clien...](https://www.wsj.com/articles/schwab-in-bid-for-younger-clients-to-
allow-investors-to-buy-and-sell-fractions-of-stocks-11571334424)

I'm not totally sure how it's structured, but I imagine RH "owns" the shares
and offers you the corresponding fractional amount of value/dividends, etc.

~~~
mushufasa
Folio has been doing it for over a decade
([https://www.folioinvesting.com/folioinvesting/brokerage-
feat...](https://www.folioinvesting.com/folioinvesting/brokerage-
features/dollar-based-investing-and-fractional-shares/))

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wyxuan
Article from BI: [https://www.businessinsider.com/robinhood-stock-trading-
app-...](https://www.businessinsider.com/robinhood-stock-trading-app-rolling-
out-fractional-share-trading-2019-12)

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skizm
This is good if you want to invest in BRK.A.

~~~
rch
You already have BRK.B

~~~
Keloo
just a small note: brk.a is different in terms of voting power. but for small
investors this is probably negligible anyway.

~~~
kgwgk
It’s not like fractional shares are going to give you any voting rights
anyway.

