Fractional trading in domestic stocks, which lowers the barrier for small investors, may hinder them during market downturns. This is due to varying order cutoff times among brokerages and restrictions on same-day selling before the regular trading session ends.
According to the financial investment industry on October 19, the number of order executions for fractional trading services at three major brokerages ranged from five to 36 times a day. The cutoff time for same-day sell orders varied by as much as 50 minutes, from 2:00 PM to 2:50 PM.
These brokerages collect fractional orders from investors for a certain period before submitting them to the market in whole shares. The frequency of order executions varies by brokerage, ranging from every 10 minutes to five or six times a day.
Orders for the day are accepted until as early as 2:00 PM and no later than 2:50 PM, which is 40 minutes to 1 hour and 30 minutes before the regular market closes at 3:30 PM. Orders received after the cutoff are carried over to the next business day or are restricted for same-day acceptance.
As a result, investors may find it difficult to sell their fractional shares immediately, even if stock prices plummet just before the market closes. This creates a disparity in market response times between investors holding fractional shares and those holding whole shares.
This limitation stems from the structure of fractional trading in domestic stocks. Brokerages aggregate fractional orders from investors and fill any shortfall with their own funds before placing orders in whole shares on the exchange. Unlike regular stock trading, it is not possible to buy or sell fractional shares instantly at the desired time.
The execution price also varies. Due to the time lag between order acceptance and actual execution, the price confirmed at the time of order may differ from the actual trading price. In a volatile market, such discrepancies can impact investors' profits and losses.
There are also transaction cost burdens. Some brokerages impose an additional trust cancellation fee of 0.15% on top of the regular trading commission for fractional trading in domestic stocks.
A representative from the brokerage industry stated, "Domestic fractional trading does not allow exchanges to directly accept fractional orders; instead, brokerages fill the shortfall with their own funds and place orders in whole shares. Since buy orders must also be aggregated by round, it is practically difficult to implement real-time trading."
* This article has been translated by AI.
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