pitfalls of fractional investing

Already very popular in the United States, fractional stocks promise an investment accessible to all in the financial markets. But the practice is not without risk.

In theory, investing in stocks should be door to all wallets. And even if you’re on a tight budget, you can invest in shares of prestigious French companies like Crdit Agricole (EUR 8.50), Orange (EUR 10.50), or even Angie (11.15 euros). But this is not true for all titles.

Some actions are exchanged exorbitant prices for the humblest investors. For example, today we have to spend 148 euros acquire a stake in Apple. Worst: Luxury giant Herms titles traded around 1146 euros. What scares off small investors who want to position themselves on these values.

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Invest from 1 euro

At least for now. Because everything changes: most without intermediaries how BUX, Lydia and Trade Republic now offer their users to buy fractional shares from a few euros. One euro is all you need to bet on LVMH or Apple and become an investor in the most valuable companies in the world thanks to fractional shares, promises, for example, Lydia, who since the launch of the trading functionality at the end of 2021.

The idea has something to seduce. And probably not alien to the growing success of the stock market among young people, often less financially secure than their years. Because today is almost 5% belonging under 25 years old hold shares against 2.4% in 2019. it historically high rateinsists the Financial Markets Authority (AMF) in a June 2022 letter to the Savings Observatory.

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Managed Products

However, split investment offers don’t always make it very clear what you’re investing in, warns AMF. Since the name of stock fractions actually covers several types of offers. And not all of them are equal.

With some brokers, you are actually buying shares of real stock. And they are grouped into entire promotions when you have enough of them. Then you benefit from equal rights than other investors. Namely, the possibility of receiving dividends and voting at general meetings.

But more often than not, brokers do offer you to invest in derivatives. On paper, these financial instruments repeat the action down to the smallest detail. However, you do not actually own the stake. And this can create several problems.

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No rights

First, you have no voting rights, no direct and automatic right to receive dividends, AMF warns. But if you don’t get dividends, your only way to make money is to make money. capital gain when reselling derivative products. It is a risky investment method that gives pride of place trade not an investment long-termand therefore not suitable for all investor profiles.

Fortunately, the practice is not systematic. Some of these tools may (…) entitle you to periodic payment reflects dividends, recognizes AMF. To get to the bottom of it, it is important to carefully read commercial and regulatory documents, reminds the police officer of financial markets. In other words: make sure you understand what you are offered to buy.

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risky investment

Another downside: fractional stocks expose you to credit risk, because by subscribing to a derivative product, you become a creditor to its issuer. In the event of bankruptcy, the latter may not be able to fulfill its obligations. Before investing, learn about financial health sender. And make sure your investment is backed by the Deposit and Permission Guarantee Fund (FGDR) securities guarantee. Thus, you will receive compensation in case of refusal of your institution.

Finally, you cannot sell your fractional shares on traditional stock markets. The sale of your assets will most often take place on secondary market organized through you on your own platform. So your ability to resell your fractional shares will depend on the liquidity of the products in that secondary market. It is important (…) to learn about the possibilities of selling all or part of your investments and their value, AMF warns. It may not be easy.

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