Education, Investing

What is fractional investing and why does it matter?

Simply put, fractional investing — sometimes called fractional share investing — means that investors can buy pieces of an asset (this applies to cryptoassets as well as traditional assets such as stocks and ETFs) rather than having to buy the entire asset all at once.

Take bitcoin for example. Say the value of bitcoin is $10,000, but an investor only has $100 on hand to invest. By using fractionalized investing tactics, the investor doesn’t have to sit out and wait the months or years that it might take to save $10,000. Instead, they can start purchasing bitcoin with the $100.

Put another way, fractional share investing allows investors to start capturing upside (a fractional investor cares more about an asset’s value is increasing than they do about the actual price of the asset) with a minimal initial investment.

What this means is that retail investors don’t have to wait on the sidelines saving money for the day when they can finally buy into a market that they find interesting. Instead, fractionalized investing allows investors to break large investments into smaller parts and buy into a market over time.

Fractionalized investing makes getting started simpler because it doesn’t require a big initial investment (one share of Amazon costs $1840.12, while one share of Alphabet, Google’s parent company costs $1,120.14). For many retail investors, those kinds of share prices might be out of reach if purchased as full shares.

But fractional investing changes all of that, and allows everyone the ability to make investment decisions based on what they think might make the best return rather than what share prices they can afford.

Top three reasons why fractional investing is useful

Fractional investing makes investing easier and creates greater access. Here’s how:

  1. Opportunity: Fractional investing gives investors the opportunity to get access to valuable assets that might otherwise be out of reach. Investing with Abra only requires a $5 minimum to start buying exposure to fractions of valuable assets.
  2. Immediacy: The ability to mobilize small amounts of capital, instead of having to wait to save for the full value of the asset, means that investors can quickly react to changing market conditions.
  3. Customized portfolio: Fractional share investing also allows users to spread their portfolio across a number of assets in order to create a hedging or risk strategy. 

Abra and fractional investing

Abra uses crypto-collateralized contracts in order to give investors exposure to traditional stocks and ETFs as well as synthetic cryptocurrencies outside of the US.

The crypto-collateralized contract model leverages the programmable aspects of the Bitcoin blockchain. Since investors are Abra users are holding synthetic expressions of the assets they are interested in holding (and in reality holding a position in a Bitcoin multi-signature contract), then fractional shares are possible, just like buying fractional amounts of bitcoin is possible.

The power of Bitcoin is truly multi-faceted, and the ability to create crypto-collateralized contracts to give investors all over the world the ability for simple and fractionalized access to some of the most exclusive and valuable markets is just one more reason why this technology is truly revolutionary.