56 Sell Fractional Shares





Sell Fractional Shares

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Selling fractional shares isn't obvious when you place online orders. You must know how different brokerages handle fractional shares so you don't end up paying a big commission to dump a piddling investment.

Many online brokerage firms, such as TD Waterhouse, Charles Schwab, E*TRADE, Harrisdirect, and Muriel Siebert, offer dividend reinvestment services. With these programs, all dividends paid on stocks you own are reinvested automatically into new shares. However, these dividend reinvestments almost always include some fractional shares. You must place your sell orders correctly to make sure that you sell all your shares including the fractional ones.

Generally, brokerages that offer dividend reinvestment plans reinvest dividends with no commissions or fees. Over time, the reinvestment of these dividends can help you add significantly to the stocks that you own and help you keep the dividends you receive invested in stock. Reinvesting even a small amount of dividends instead of spending the money can enhance your returns over time. According to Ibbotson Associates, large company stocks returned an average of 10.2 percent per year from 1925 to 2002, with all dividends reinvested in additional shares along the way. Without that dividend reinvestment, the return averaged just 5.7 percent a year during the same timeframe. By taking advantage of dividend reinvestment services, you obtain the benefits of reinvested dividends without paying commissions to do so.

Some firms, such as TD Waterhouse, enable clients to sign up for automatic dividend reinvestment for all stocks they own or to designate reinvestment for some stocks but not for others. In most cases, if you don't select the option to have dividends reinvested when you first buy shares of the stock, then you must make a special request later by completing a form or speaking with the brokerage's customer service representatives.


When it's time to sell a position, any fractional shares you own might need to be handled differently from whole shares. Fractional shares can't be sold in the open market as whole shares can, so brokerages must liquidate those partial shares themselves on behalf of their customers. Some firms make it easy to sell fractional shares—on the screen showing your stock holding, just clicking a link to trade the stock pre-populates the order screen with the number of whole and fractional shares that you own. Some brokers don't explicitly show the fractional shares; instead, they place a trade to sell the fractional shares when you specify a trade that sells all your whole shares.

At other firms, selling is a bit more complicated. E*TRADE, for example, requires you to submit a separate request to liquidate fractional shares within five days of selling the rest of the stock. If you submit this request, the firm will give you the original price for the whole shares sold.

In most cases, the trade for your fractional shares is separate from the sale of your whole shares, so you might see two separate trades before all your shares are sold. In addition, some brokers wait until they have enough fractional shares to sell whole shares, so your fractional shares might remain in your account for several days.


Douglas Gerlach


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