Two seismic changes in stock brokerage services quietly occurred during the past few months that should further democratize investing, making it even easier to buy and sell stocks. Whether this is a good thing will need to await future judgment.

The first change was the adoption among many discount brokers of commission-free trading. You may now buy and sell stocks FOR FREE at many large, well-capitalized discount brokers. No more trading costs. You can day-trade your head off and pay no brokerage fees. If you invest “on margin,” you still need to pay the margin interest (buying “on margin” means borrowing money from your broker to buy or hold stock whose value exceeds the net value of your account). Do we recommend that you day trade and buy stocks on margin? No way.

The second change was the introduction of fractional trading. Many brokers now let you buy only a part of a share of stock if you don’t want to buy the entire share. Fractional trading also includes Exchange Traded Funds (ETFs). Suppose a stock is trading at $1,000 but you only want to buy $100, or $50 or even $1.00 of this stock. Now you can! Since fractional trading is arranged by brokers and not the stock exchanges themselves, your broker, if it offers this service, might not be able to arrange fractions in every stock. If you want to buy a fractional share, you enter your order in dollars and cents, not numbers of shares. For example, instead of entering an order for 1 share of Apple, you’d enter the dollar amount of Apple that you want to buy, e.g., $150.00.

One clear advantage of commission-free fractional trading is that it makes dividend reinvestment much easier. You may now reinvest your dividends back into your stock for free without waiting to accumulate enough cash to afford a full share.

We love dividend reinvestment.