Piecing Together the Extent of Retail Fractional Trading

Abstract

We examine the introduction of fractional trading and its impact on retail security ownership. Fractional trading aims to increase investor access to securities with high prices. Over the initial months of Robinhood’s fractional trading program, the number of unique owners increases approximately 53 percentage points more for stocks priced above $100 versus those priced below $50. On an intraday basis, high-price stocks exhibit incremental ownership growth specifically during periods when fractional trading is permitted. Our results show that Robinhood investors make ample use of fractional trading to acquire previously inaccessible securities, indicating a substantial reduction in price-based investing frictions and carrying implications for retail portfolio management. In addition, we show that the potential market impacts of fractional trading activity appear negligible based on share volume data from multiple brokers with fractional trading programs.
The accompanying internet appendix includes important new details about the Robintrack dataset for researchers to consider in future applications.

Keywords: fractional shares, retail investors, nominal share price, market frictions, Robinhood

JEL Classification: G11, G24, G32