Beginner's Guide to Small Investors: Complete Strategy for Fractional Share Trading, Intraday and After-Hours Strategies, and Cost Analysis

What is fractional share trading? Why is it becoming a new investment trend

Fractional share trading has rapidly grown in the Taiwanese investment market in recent years, especially favored by investors with limited funds. Simply put, fractional shares are stocks less than one full lot (1000 shares), with a minimum trading unit of 1 share. Historically, fractional shares mainly resulted from unfilled portions of orders or outcomes during stock distribution processes.

Since the Taiwan Stock Exchange launched intraday fractional share trading on October 26, 2020, buying and selling fractional shares is no longer limited to after-hours trading. Investors can now operate fractional shares throughout the trading day, making it easier for small investors to participate in the stock market with lower barriers. Each order for fractional shares does not exceed 999 shares, serving as a dedicated channel for trading stock remainders.

Intraday vs. after-hours fractional share trading: differences in trading hours and rules

Intraday fractional share trading hours

Intraday fractional share trading occurs from 9:00 AM to 1:30 PM on each trading day, fully overlapping with regular stock trading hours. Investors can submit orders starting at 9:00 AM. Intraday fractional shares are traded electronically via broker platforms. The first matching occurs at 9:10, followed by a collection of bids every 1 minute through a call auction, with transaction priority based on “price first, time first.”

It’s important to note that if orders are unfilled or partially filled during this period, the unfilled portion will not automatically carry over to after-hours trading. Investors must resubmit their orders.

After-hours fractional share trading hours

After-hours fractional share trading takes place from 1:40 PM to 2:30 PM. Investors can place orders via electronic or telephone manual orders. Unlike multiple matches during intraday trading, after-hours trading only conducts one call auction at 2:30 PM. The matching is based on “maximum transaction volume,” with transaction priority given to the highest bid price, or if prices are equal, randomly ordered by the computer. Unfilled orders are automatically canceled after the auction and do not carry over to the next day.

Cost structure of fractional share trading: commission calculation and discounts

The commission for fractional share trading is calculated the same way as for full shares, at 0.1425% of the transaction amount. However, each broker sets its own minimum fee standards, usually between 1 and 20 TWD.

For example, buying 200 shares of TSMC (2330.TW) at a closing price of 1065 TWD:

• Basic commission: 200 × 1065 × 0.1425% = 303.53 TWD
• With a 50% discount from the broker: 303.53 × 50% = 151.77 TWD

To encourage online orders, most brokers offer discounts for electronic trading. Here is a comparison of fractional share trading discounts among major brokers:

Practically, it is recommended to make single transactions of over 10,000 TWD to effectively reduce the impact of fees on investment returns.

Rights and protections for fractional share holders

Fractional share holders enjoy the same shareholder rights as full share owners, including:

Dividend and profit distribution: Fractional shareholders can participate in dividends, although the amounts are smaller. During dividend distribution, fractional shares less than one full share can be converted into cash dividends or sold collectively, with proceeds distributed to fractional shareholders.

Minimum trading units: The minimum buy/sell unit is 1 share, allowing investors to trade in single shares or multiples thereof, suitable for dollar-cost averaging strategies.

Trading flexibility: Fractional shares can be freely bought and sold. The Taiwan Stock Exchange explicitly recognizes fractional share trading. Liquidity improves as trading volume increases, making it a daily investment tool for small investors.

Practical tips to improve transaction success in fractional share trading

For less popular stocks, trading volume for fractional shares may be low, leading to unfilled orders. To address this, here are two strategies to increase the likelihood of successful trades:

“Convert fractions into whole” strategy

When intraday fractional share prices show a large amount of unfilled sell orders, investors can consider buying the insufficient fractional shares first, rounding up to a full lot (e.g., 1000 shares), then selling in the more active full lot market. For example, holding 700 shares of Shin Kong (1582.TW) with low liquidity, buy an additional 300 shares to reach 1000 shares, then sell in the full lot market with higher liquidity.

Applying price placement strategies in after-hours trading

Since after-hours trading involves only one matching and follows the “maximum volume” principle, investors with specific needs can adopt the following tactics:

Buying: Place a bid at the limit-up price to increase the chance of execution under the maximum transaction volume rule.

Selling: Place a bid at the limit-down price, which can also prioritize execution during the call auction.

This method is especially suitable for investors with clear intentions for a target stock and urgent trading needs.

Advantages and risks of fractional share investing

Main advantages

Low capital threshold: Compared to full shares, fractional shares allow investors to participate with smaller capital, maintaining liquidity for daily expenses or other investment opportunities. Regularly buying fractional shares has become a common entry strategy for small investors.

Low barrier to testing waters: Investors can access the stock market without large capital, facilitating learning and testing investment concepts.

Main risks and limitations

Lack of liquidity: Trading volume for fractional shares is much lower than full shares, often requiring longer matching times, and prices may deviate from expectations.

Higher implicit costs: Besides basic commissions, fractional share trading involves minimum fee regulations (usually starting at 20 TWD). Small transactions may be eroded by fees, significantly reducing returns over time.

Trading process restrictions: Fractional shares can only be sold, not bought; they must be fully liquidated at once; conversions from fractional to full shares are time-limited and expire if overdue. Due to limited supply, investors may sometimes be unable to buy the desired quantity.

What other investment options are suitable for small investors?

For those concerned about the costs and liquidity of fractional shares, Contracts For Difference (CFDs) offer an alternative with a low entry barrier.

CFDs are financial derivatives where investors only focus on the difference between buy and sell prices, without owning the actual stock. This trading method requires only a small margin deposit, with no additional commissions, charging transparent spread costs, and no liquidity issues.

Cost comparison: For example, buying 5 shares of Google directly requires $2000 (at $400 each). Using CFDs with a 5% margin requirement, only $100 is needed.

Recommendation: Fractional shares are suitable for long-term investors planning to hold stocks; CFDs are more appropriate for short-term traders due to same-day settlement and overnight interest charges. Carefully assess your investment horizon and risk tolerance before choosing.

Conclusion

Fractional share trading has become an integral part of Taiwan’s investment ecosystem. Compared to traditional full share trading, the introduction of intraday and after-hours fractional trading provides more opportunities for small investors. Investors can flexibly plan their trades during the day or after hours, leveraging fee discounts and strategic order placements to reduce costs.

Successful fractional share investing relies not only on trading mechanisms but also on investors’ market knowledge, risk awareness, and rational judgment. Beginners are advised to start with small, regular investments, learn basic analysis methods, and avoid impulsive or herd-driven trading to achieve steady growth in the fractional share market.