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You can now invest a few cents per stock on Interactive Brokers

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Trading platform Interactive Brokers is offering fractional investing when you trade US stocks from Australia.

Users of the popular share trading platform Interactive Brokers (IB) can now invest just a few cents at a time into stocks, if that floats their boat.

This month, Interactive Brokers joined the growing list of online brokerages offering fractional investing.

Fractional investing allows you to trade in dollar amounts, instead of individual shares. So, say you want to invest in Google shares – which trade for around $1,300 each – using fractional investing, you can choose to buy just $100 of the stock instead.

While the feature is available to Australian users, it currently only applies to US-listed stocks.

Other share trading apps like Stake and Goodments already offer fractional shares on US stocks in Australia, but Interactive Brokers is among the first (possibly the very first) to introduce no minimal trade amount.

So, if for some crazy reason you wanted to, you could invest one cent (pick your currency) in Google.

How it works

Basically, IB's feature allows users to trade fractions of up to four decimal places (0.0001 of a stock). To give an example, IB's engineering manager Dennis Stetsenko showed Finder a fractional trade in action.

Stetsenko purchased 0.0001 of a share worth US$3.55, meaning he'd invested US$0.000355. See image below:

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Interactive broker fractional trade

The process is exactly the same as trading regular stocks through the platform, with the choice of entering a dollar amount.

You'll also need to have the latest software installed – the Traders Workstation (TWS) Version 979.

Should you buy fractional shares?

One of the most obvious problems with fractional investing is that by trading small amounts, any profits gained are unlikely to offset either the broker fees or the foreign exchange (FX) fees.

For example, Interactive Brokers charges $0.0035 per US share for Australian users, plus an FX fee of 0.2% when you convert AUD to USD.

And other popular fractional investing platforms Stake and Goodments have mostly scrapped the brokerage fees for US stocks, but charge higher FX fees.

Fractional investing platforms in Australia

PlatformMinimum investmentBroker fee for US stocksFX fee
Interactive BrokersNone$0.0035 per share0.20%

However, fractional investing could be a good strategy for building up a diversified portfolio of stocks, similar to building your own exchange traded fund (ETF), as Stetsenko explained.

"We have actually had some financial advisors using fractional shares for over two years and that testing has gone well. We are now rolling it out to retail clients due to seeing demand," Stetsenko told Finder.

"They help make shares of expensive stocks affordable for almost any investor. They also can help investors diversify their portfolio. For example, you can now have 1,000 shares of stocks for $1,000."

The service is not yet available for ASX-listed stocks and the platform's commission-free trading, announced last month, is currently only available to residents of US and India.

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