Small-amount Investment in ETF Fractional Shares: The Complete Trading Guide Every Retail Investor Must Know

Can You Invest in ETFs with Limited Funds?

For many retail investors interested in entering the ETF market, there is an unavoidable reality: The basic trading unit of Taiwan stocks ETFs is “one lot” (1000 shares).

Taking Yuanta Taiwan 50 ETF as an example, the recent closing price was NT$161.65. Buying one lot requires:

161.65 × 1000 = NT$161,650

This is a significant expense for investors with limited capital. So, is there a way to participate in ETF investing with less money? The answer lies in ETF fractional trading.

What Exactly Is ETF Fractional Trading?

Simply put, ETF fractional trading means purchasing less than 1000 units (1~999 shares) of an ETF product. For example, buying 50 shares or 200 shares of an ETF falls into the fractional trading category.

Compared to whole-share trading, fractional trading differs in terms of transaction fees, trading hours, and order placement methods. To effectively control trading costs, it’s essential to understand these differences.

Master Trading Hours and Rules

ETF fractional trading is divided into two periods: intraday and after-hours, each with different rules and restrictions:

For after-hours fractional trading, investors can use these order techniques to improve the chances of execution:

• Highly liquid ETFs: Place buy orders at the limit-up price or sell at the limit-down price, as high prices are prioritized during matching.
• Less traded ETFs: Place orders below the closing price.
• General ETFs: Use the closing price as the basis for orders.

How Is Transaction Fee Calculated for Fractional Shares?

The fee formula is:

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

For example, buying 200 shares of Yuanta Taiwan 50 ETF (assuming Fubon Securities’ 35% discount):

200 × 161.65 × 0.1425% × 0.65 = NT$29.95

Many brokers originally set a minimum fee of NT$20, but with increasing market competition, more brokers have lowered this threshold to NT$1, further reducing entry costs for fractional trading.

Is the transaction fee the same when buying 1000 shares vs. one whole lot?

This is a common question among investors. Let’s do the calculation:

The fee for buying 1 share of Yuanta Taiwan 50 ETF is: 1 × 161.65 × 0.1425% = NT$0.23

Since NT$0.23 is below the NT$1 minimum, the actual fee is calculated as NT$1. Therefore, as long as each order is at least 5 shares:

5 × 161.65 × 0.1425% = NT$1.15

Conclusion: As long as each order exceeds 5 shares, the transaction fee for fractional shares and whole shares is nearly the same.

Don’t forget the transaction tax

When selling ETF fractional shares, besides the transaction fee, you also need to pay a transaction tax. The applicable tax rate for ETFs is 0.1%.

Selling 200 shares of Yuanta Taiwan 50 ETF with a fee of NT$161.65:

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

How to Place Orders to Buy and Sell ETF Fractions?

Taiwan Stock Market Fractional Order Process

After opening an account, select the trading type in the broker app → choose “Intraday Fraction” or “After-hours Fraction” → set as “Limit Order” → choose “Buy” or “Sell” → enter quantity (1~999 shares) → input price → submit order.

More Flexible US Stock Fractional Trading

The US stock market has no concept of “one lot,” allowing investors to choose any number of shares freely. For example, with SPY (an ETF tracking the S&P 500), you can:

• Choose Market Order or Limit Order
• Set order validity up to 90 trading days
• Regarding fees: brokers like Firstrade have completely waived commissions, making frequent fractional trading more advantageous

Key Reminder: Pitfalls of Fractional Trading

The transaction price for fractional shares may differ from that of whole shares. Since fractional and whole shares are matched in separate trading pools, the bid-ask spread for fractional shares is often significantly larger than for whole shares.

Additionally, intraday fractional trading volume is usually lower, and after-hours quotes are fewer, which may result in longer times to execute or even failure to match during quiet market conditions. Investors can check daily after-hours fractional trading statistics on the Taiwan Stock Exchange official website.

Method Two: Use CFDs to Trade Small-Amount ETFs

If you find fractional trading liquidity insufficient, Contracts for Difference (CFD) is another option.

Compared to fractional trading, advantages of CFDs include:

For example, with Mitrade, buying a $223.91 semiconductor ETF with 10x leverage requires only $22.39 in capital, greatly lowering the investment threshold and improving capital efficiency.

CFDs completely avoid the waiting time for fractional trades, but investors must be aware of the risks associated with leveraged trading.

Can You Receive Dividends When Investing in Small-Amount ETF Fractions?

The answer is yes. Whether holding 1000 shares or just 1 share, investors can receive dividends normally. The more shares held, the higher the dividend income.

This also explains why recent “Dividend Growth Investors” prefer to use dollar-cost averaging to invest in high-dividend ETFs—buying just a few shares each time, and over the long term, through regular investing and dividend reinvestment, accumulating substantial assets. According to Taiwan Stock Exchange statistics, the most popular dollar-cost averaging targets are high-dividend ETFs, demonstrating investor confidence in this strategy.

ETF Market Size and Development Status in Taiwan

ETFs have a history of over 30 years. At the end of 2003, global ETF assets under management were only $212 billion USD, but they quickly grew to over $1 trillion USD by 2009, and surpassed $10 trillion USD again in 2021. By the end of 2023, the total ETF assets listed worldwide reached $11.61 trillion USD, with an average annual compound growth rate of 22.16% over the past 20 years.

Taiwan’s market performance is equally impressive. The first ETF in Taiwan, Yuanta Taiwan 50 ETF, was launched in 2003, and the market has developed rapidly since. By the end of 2023, Taiwan’s total ETF count reached 227, with assets totaling NT$3.56 trillion, more than doubling from NT$1.74 trillion in 2020.

In this market environment, small-amount ETF fractional investing has become the most economical and flexible way for retail investors to participate.

Quick Start Your Trading

1. Choose a broker: Compare fee discounts and minimum consumption policies
2. Open an account and deposit: Complete identity verification and transfer funds via multiple channels
3. Research targets: Use fractional trading flexibility for regular investment in preferred ETFs
4. Start placing orders: Enter the market during intraday or after-hours periods using order placement techniques