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by pravus
2383 days ago
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Fractional shares are common when using DRIPs (Dividend ReInvestment Plans) which basically just use all dividend proceeds to purchase more shares instead of paying out in cash. Since then entire amount is used, you always get a fractional share since it would be very rare to get a dividend that is an exact multiple of the market price. My understanding is that the way this works is that the broker will generally already have an inventory of all of the stocks that are regularly traded through them and simply carve up your fractional allocation from this inventory. When you purchase shares through a broker they can simply sell you the shares directly out of their inventory if they can match the market price. They will even get a small incentive to do this since it produces order flow (volume) without hitting the exchange directly. This also helps with order clearing (the T+3 rule for ownership transfer). Since the broker is selling out of their inventory, it is virtually guaranteed that your order will clear. When transferring shares between institutions, it's possible that this process will fail and you will be notified that your order wasn't able to be fulfilled. It's rare, but can happen. While purchasing fractional shares outright is somewhat new, the concept itself has been around for a while and I've had DRIPs at multiple different brokers. I was even able to get fractional shares of high priced preferred stocks going for $1,000+ market per share. Anyways, that's my experience. |
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Most countries are now T+2. The USA has been so for over two years.
https://en.wikipedia.org/wiki/T%2B2