Our Two Bits, Part 1: Fractional Shares
Get Bits of Stock™ Shopping With The Brands You Love
At the heart of Bits, we are a bunch of engineering geeks and financial quants that are obsessed with anything at the intersection of finance and technology. We designed a platform that delivers the most intuitive user experience while simplifying not only investing but all the technology that makes our platform run. Our value proposition is pretty simple — get Bits of Stock™ for free every time you shop without risking your own money. Like cash back but with stocks. Spend $$$ at Amazon and get up to 5% back in Amazon stock! How does it work? Let’s start with the basics.
Bits of Stock™
The name explains it all. Bits are just fractional shares of individual stocks. We’re approaching 2020, the idea of buying a whole share of stock is antiquated and besides, who can afford a share of Amazon stock (~$1800 a share)? Most people can’t afford to buy stocks. Think about Google, Apple, Facebook, etc. We created Bits so that you can buy any amount of any stock every time you shop. More importantly, we’ve created an extremely intuitive way to earn free stocks and learn about investing without risking your own capital. It works in 3 simple steps using Macy’s as an example:
As you can imagine, it would be hard to give whole shares as a reward every-time you shop. For example, if you purchased a $5 cup of coffee from Starbucks then we could not give you a whole share of Starbucks coffee as the current price per share is $76. It also wouldn't be feasible since we’re giving you 3% back on ALL Starbucks purchases. We can, however, give you “Bits of Starbucks” :). Let say you frequently purchase Mocha Lattes from Starbucks 3x a week for a year. If the average price for a mocha latte is $5, that would be $15 a week and over $780 a year in spending at Starbucks. Using Bits, you can receive up to 3% in stock back on your mocha latte meaning you would have accrued nearly $24 worth in Starbucks stock. Since Starbucks share price is trading around $75, you would now own a fractional of a share in Starbucks, one-third to be exact.
But how does fractionalization actually work? Can you buy fractions of shares of stocks directly from a stock exchange?
Fractional shares mean owning a fraction of a share. Bits work with dealers to execute the fractionalization. We’re not talking about the 10 Crack Commandments by the Notorious BIG, but it does draw an analogy. Bits is not your dealer, we do not profit from your supply, but your broker can be. It comes down to a risky game of accounting. Your broker, custodian or dealer (check the fine print, the name will be there) slices and dices shares of stock they already own as inventory — let’s call it their own supply. It’s important to note that you can’t buy fractions of stocks on the stock market. Similarly, you can order a whole pizza and then split it with your friends by the slice. The larger the party, the smaller the slices — unless you have a large budget for a large party, in that case, we expect an invite.
Dealers take on risk since they buy the shares first before they can sell to you in fractions, and if they don’t sell all the fractions, they are left with market risk, owning more of the stock than they want. Needless to say, a financial dealer is in the business of risk management and efficient at distributing supply. What does this mean for you? It means you can afford shares of stocks you couldn’t afford before Bits. You can own shares of expensive stocks like Amazon, Google, Tesla with little as $5. Matter of fact, we can help you get started. Sign up for Bits below and when you refer a friend to join, you receive $5 in free stock with participating brands (Amazon, eBay, Marriott, Target, etc.). Bits will go live this summer.