Fractional trading has made it easier than ever for investors to buy into high-priced stocks like Tesla or Berkshire Hathaway without needing to pay for a full share. It’s often hailed as a win for financial inclusivity. But is there a hidden cost?

A new paper in The Review of Financial Studies suggests that fractional trading hasn’t just opened doors for small investors, it has also imported speculative behaviour away from penny stocks into more mainstream stocks. In the past, speculative traders with modest capital often gravitated toward penny stocks due to their low share prices. Now, those same speculative habits have migrated to blue-chip and mid-sized companies, increasing volatility in stocks once considered stable. This may have contributed to meme-stock volatility that exacerbated returns-chasing behaviour from newer investors.

While fractional trading enables broader participation in the markets, it also raises concerns about financial literacy, speculation, and who ultimately benefits the most: the investors or the industry profiting from increased trading activity.

Read more in my latest column for The Globe and Mail.

Fractional trading has ‘democratized’ investing. But who benefits?
Small investors have greater access to higher-priced stocks now, but it comes at a price, study finds
The Globe and MailPreet Banerjee