Small-scale ETF investing made easy: The complete guide to fractional trading

When you want to invest in ETFs but find you don’t have enough funds to buy a full share, many people may feel frustrated. However, in reality, small investors can flexibly allocate their ETF portfolios through fractional trading. This article will explore how to achieve small-scale investment goals via ETF fractional trading, helping you find the most suitable investment method.

According to the Taiwan Securities Investment Trust and Consulting Association, by the end of 2023, the Taiwan market offered 227 ETF products with a total asset scale of NT$3.56 trillion, more than doubling from NT$1.74 trillion in 2020. Globally, the ETF market’s growth is even more remarkable—In 2003, global ETF assets were only $212 billion, rising to $11.61 trillion in 2023, with an average annual compound growth rate (CAGR) of 22.16% over nearly 20 years. However, how to enter this market at the lowest cost is a concern for many retail investors.

Why might traditional full-share investing not be suitable for everyone?

The basic trading unit in Taiwan’s stock market is one “lot,” which is 1,000 shares. For example, the Yuanta Taiwan 50 ETF, priced at NT$161.65, requires an investment of NT$161,650 to buy one lot. For investors with limited funds, this amount is indeed not small.

In the US stock market, investors can buy any number of shares flexibly according to their funds, but Taiwan’s traditional full-share trading mechanism sets a significant barrier for small investors. This is where ETF fractional trading comes into play, opening a new investment channel for small investors.

What is ETF fractional trading? How does it differ from full-share trading?

Fractional shares refer to buying less than 1,000 units (1-999 shares) of an ETF. For example, purchasing 50 shares of an ETF falls into the fractional trading category. Compared to full-share trading, fractional trading differs in terms of transaction fees, trading hours, and order placement methods.

Time schedule and rules for fractional trading

Fractional trading is divided into intraday and after-hours sessions, each with different rules. Investors should choose based on their own circumstances.

Intraday fractional trading (09:00-13:30) is limited to electronic orders, using limit ROD (Rest of Day) orders, with a collection auction every minute. The first auction occurs at 09:10, then every minute afterward. Transactions follow the “price priority, time priority” principle.

After-hours fractional trading (13:40-14:30) allows unrestricted order placement via electronic, phone, or counter orders, also using limit ROD orders. Only one collection auction occurs at 14:30, with tie prices decided randomly.

Cost calculation for fractional trading: fees and taxes

How are transaction fees calculated?

Fees for fractional shares are calculated the same as full shares, with the basic formula:

Fee = Share Price × Number of Shares × 0.1425%

If a broker offers discounts, it becomes:

Fee = Share Price × Number of Shares × 0.1425% × Discount Rate

For example, buying 200 shares of the Yuanta Taiwan 50 ETF at NT$161.65 per share:

200 × 161.65 × 0.1425% × 0.65 (Fubon Securities discount) = NT$29.95

Minimum fee and actual costs

Many brokers set a minimum fee threshold. Traditionally, the minimum was NT$20, but with increased competition, many brokers have lowered it to NT$1, further reducing small investors’ costs.

For example, buying 1 share of the Yuanta Taiwan 50 ETF:

1 × 161.65 × 0.1425% = NT$0.23

Since this is below NT$1, the actual fee is NT$1. This means you need to buy at least 5 shares to avoid the minimum fee impact:

5 × 161.65 × 0.1425% = NT$1.15

Therefore, small investors should ensure their fractional order includes enough shares to surpass the minimum fee threshold for the best cost efficiency.

Transaction taxes

In addition to fees, selling fractional shares incurs a transaction tax, which for ETFs is 0.1%. For example, selling 200 shares of the Yuanta Taiwan 50 ETF:

200 × 161.65 × (0.1425% + 0.1%) = NT$78.4

How to place orders for fractional ETF trading? Practical guide

Investors can open a securities account and complete fractional orders via the broker’s trading app. The process is similar to full-share trading, with key steps:

1. Select trading type: Intraday fractional or after-hours fractional
2. Choose order type: Must select “Limit Order”
3. Set trade direction: Buy or sell
4. Enter quantity: Any number between 1 and 999 shares
5. Set price: Based on market conditions

Tips to optimize order execution

Since fractional shares are matched independently, the transaction price may differ from full shares, and liquidity can be weaker. To improve chances of execution:

• Target popular, high-liquidity ETFs: Try placing buy orders at the upper limit (e.g., limit up) or sell orders at the lower limit (limit down), as matching favors higher buy and lower sell prices.
• For ETFs with low trading volume: Place orders slightly below the closing price to increase the likelihood of execution.
• For general ETFs: Placing orders at the closing price is a safer choice.

Note that fractional orders may be partially filled, so investors should be aware of this possibility.

Advanced option: Using CFDs for small-scale ETF investment

If you seek higher liquidity and trading flexibility, Contracts for Difference (CFD) offer another way to invest in ETFs. CFDs allow leveraged trading, reducing the required capital and supporting both long and short positions.

Comparison between CFD and fractional trading:

For example, on Mitrade, investing in the iShares Semiconductor ETF at USD 223.91 with 10x leverage requires only about USD 22.39 of actual capital, greatly enhancing capital efficiency. However, leverage involves risks, so proper risk management is essential.

Important: CFD trading involves leverage risk; investors should fully understand the risks and set strict stop-loss strategies.

Common questions about ETF fractional investing

Can I receive dividends from fractional ETF holdings?

Yes. Whether you hold 1 full share or 1 fractional share, you can receive dividends. The more shares you hold, the higher your dividend income. Many “buy-and-hold” investors choose regular fractional purchases of high-dividend ETFs, accumulating income over time.

According to Taiwan Stock Exchange data, popular dollar-cost averaging targets are high-dividend ETFs, allowing investors to enjoy dividend income and gradually build assets.

Are there risks of difficulty in executing fractional trades?

This depends on the ETF’s liquidity. Popular ETFs with high trading volume generally have good liquidity for fractional shares, but less traded or niche ETFs may face difficulties, especially after hours, or may not be fully matched on the same day. Investors can check daily after-hours trading summaries on the Taiwan Stock Exchange website to assess liquidity.

How should I choose between fractional and full-share investing?

• Choose fractional shares if you have limited funds but want to diversify across multiple ETFs or do regular dollar-cost averaging.
• Choose CFDs if you want to invest with smaller capital, seek 24-hour trading, or need the ability to go long or short.
• Choose full shares if you have sufficient funds and aim for the lowest costs and maximum liquidity.

Summary: Start your ETF fractional investment journey

ETF fractional trading provides small investors with a flexible way to enter the stock market. Whether through traditional fractional trading or advanced tools like CFDs, the key is to select methods that match your capital scale and investment goals.

Remember these three points:

1. Cost awareness: Calculate actual fees and taxes to avoid minimum fee traps
2. Timing: Choose intraday or after-hours trading based on ETF liquidity
3. Risk management: For CFDs, establish comprehensive risk controls, including stop-loss orders

Getting started with ETF fractional investing only takes three steps—register, deposit, and trade. Don’t let limited funds hold back your investment; small amounts can still realize your asset allocation dreams.