Put very simply, when Investors don't have enough money to buy a whole share, Fractional Share Rights (FSRs) give them the ability to invest whatever that available sum of money is, in a fraction of the share they want. For a quick explanation, jump to this Youtube video below.
Let's explain by way of example:
An investor named Randy uses Google products every day and is a huge fan of the company. He's decided investing in the the Alphabet Inc-CI A share (which is Google) is a great investment. Randy has managed to save the equivalent of about $1,200 over a number of months, and now wishes to invest the entire sum of money in Alphabet (Google), by buying some shares.
On investigation, Randy discovers that a single Alphabet share costs $940 (as at 6 September 2017), so he knows that he can purchase one whole share, but is left confused as to what he should do with the $260 left over from that purchase ($1,200 - $940 = $2260)? If he could, he'd also like that amount invested in Alphabet, but wonders if he needs to wait until he has another $940?
The answer is no. The clever people at EasyEquities have devised a way to allow him to invest that $260 in Alphabet as well.
How it works:
In order to give effect to his remaining $260 investment (transaction) in Alphabet, First World Trader (Pty) Ltd will act as your broker (agent) and buy you a Fraction of that Issuer security (Alphabet in this case) from the US Broker in accordance with that US Broker's terms and conditions.
You will be issued with that Fraction from the US Broker's own holdings and therefore, the US broker will act as principal to the trade.
Should you wish to sell a fraction, First World Trader will also act as your broker (agent) to sell that fraction when we receive your sell instruction.
Your orders for fractions will be rounded down to the nearest 4 decimal places. Please note, this may affect your purchase of a fixed Dollar amount.
For example: if you issue an instruction to buy $100 of a security, your transaction may not total exacty $100 due to rounding (It could be a cent less, but would never be more than the amount you instruct us to buy).
For further details, please consult section 11 (Treatment of Fractions) of our EasyEquities US Trading Account Terms and Conditions, together with the broader terms outlined therein.