Stock Dilution: What It Means for the Stock Investor
Stock dilution occurs when the number of outstanding shares in a corporate entity are increased either through conversion of instruments that are deemed convertible or through outright issuance of additional shares. This leads to a reduction in earnings per share and controlling stake of the shareholders in the company. Stock dilution is the opposite of stock reconstruction, where a company moves to reduce its number of outstanding shares.
Best Stock Trading Brokers UK
-
At FXCC, traders can access competitive spreads on major indices, including the Dow Jones, NASDAQ, and S&P 500. A notable limitation is the absence of individual stocks, which puts FXCC at a disadvantage compared to competitors like CMC Markets, known for offering thousands of shares.
Stock Exchanges Fractional Shares Leverage Dow Jones, Nasdaq, DAX GER 40 Index, FTSE UK Index, New York Stock Exchange, Euronext, CAC 40 Index France, Deutsche Boerse, SIX Swiss Exchange, Hong Kong Stock Exchange, Japan Exchange Group, Australian Securities Exchange (ASX) No 1:500 Stocks Spread Share Baskets Platforms NA No MT4, MT5 -
IBKR offers access to a vast range of equity products from 24 countries. You can invest directly in stocks for capital growth, dividends, or voting rights. Alternatively, engage in trading price movements with CFDs, futures, and over 13,000 ETFs. In 2024, IBKR expanded its European derivatives by including trading on CBOE Europe Derivatives (CEDX).
Stock Exchanges Fractional Shares Leverage Shenzhen Stock Exchange, Toronto Stock Exchange, Euronext, New York Stock Exchange, Korean Stock Exchange, Chicago Mercantile Exchange, London Metal Exchange, London Stock Exchange, IBEX 35, Borsa Italiana, CAC 40 Index France, Nasdaq, Japan Exchange Group, Russell 2000, Nasdaq Nordic & Baltics, Tadawul Yes 1:50 Stocks Spread Share Baskets Platforms 0.003 Yes Trader Workstation (TWS), IBKR Desktop, GlobalTrader, Mobile, Client Portal, AlgoTrader, OmniTrader, TradingView, eSignal, TradingCentral, ProRealTime, Quantower -
FOREX.com offers a variety of US, EU, and UK stock CFDs with spreads as tight as 1 point. Traders can explore both established brands and new IPOs, enhancing portfolio diversification opportunities. US stocks are available starting at 1.8 cents per share.
Stock Exchanges Fractional Shares Leverage Nasdaq, S&P 500, DAX GER 40 Index, FTSE UK Index, Australian Securities Exchange (ASX), Euronext, Hang Seng, CAC 40 Index France, Borsa Italiana, Japan Exchange Group, IBEX 35, SIX Swiss Exchange, Dow Jones, Hong Kong Stock Exchange No 1:30 Stocks Spread Share Baskets Platforms 0.14 No WebTrader, Mobile, MT4, MT5, TradingView -
Eightcap provides over 590 shares from the US, Australia, and Europe alongside a select range of indices, such as the Dow Jones and FTSE. Their Labs include first-rate educational resources, especially the ‘Navigating Stock Market Volatility’ guide. However, they do not yet offer fractional shares for budget traders, unlike brokers like XTB.
Stock Exchanges Fractional Shares Leverage New York Stock Exchange, CAC 40 Index France, DAX GER 40 Index, London Stock Exchange, Australian Securities Exchange (ASX), Euronext, FTSE UK Index, Japan Exchange Group, Dow Jones, Nasdaq, Hang Seng, Hong Kong Stock Exchange, S&P 500, Russell 2000, Toronto Stock Exchange, SIX Swiss Exchange No 1:30 Stocks Spread Share Baskets Platforms 0.03 (Apple Inc) No MT4, MT5, TradingView -
eToro provides access to countless stocks from Europe, the US, and globally. In 2024, Dubai’s leading stocks will be included, and more than 180 Nordic stocks will be available in 2025. Traders can invest independently or participate in the vibrant social trading community. Long-term investors can explore Smart Portfolios, featuring thematic collections such as Big Tech.
Stock Exchanges Fractional Shares Leverage SIX Swiss Exchange, Euronext, Deutsche Boerse, Japan Exchange Group, Shanghai Stock Exchange, New York Stock Exchange, Hong Kong Stock Exchange, Australian Securities Exchange (ASX), Korean Stock Exchange, London Stock Exchange, FTSE UK Index, S&P 500, DAX GER 40 Index, Dow Jones, CAC 40 Index France, National Stock Exchange Of India, Tokyo Commodity Exchange, IBEX 35, Hang Seng, Russell 2000, Borsa Italiana, Taiwan Stock Exchange, Nasdaq, Nasdaq Nordic & Baltics, Dubai Financial Market Yes 1:30 Stocks Spread Share Baskets Platforms 0.57 (Apple) Yes eToro Web, CopyTrader, TradingCentral -
IG provides access to over 13,000 shares for trading and investment, surpassing most rivals in the number of listed firms. The broker stands out with its zero commission policy on US shares. Additionally, out-of-hours trading unlocks more than 70 shares, alongside popular ETFs and trusts, even when markets are shut. They have also introduced an AI Index, highlighting opportunities in leading US firms specialising in artificial intelligence and machine learning, like Nvidia.
Stock Exchanges Fractional Shares Leverage SIX Swiss Exchange, Taiwan Stock Exchange, Toronto Stock Exchange, Tadawul, Deutsche Boerse, Japan Exchange Group, Shanghai Stock Exchange, Euronext, Hong Kong Stock Exchange, National Stock Exchange Of India, Australian Securities Exchange (ASX), Bombay Stock Exchange, London Stock Exchange, Dow Jones, S&P 500, IBEX 35, Borsa Italiana, Russell 2000, Korean Stock Exchange, Shenzhen Stock Exchange No 1:30 (Retail), 1:222 (Pro) Stocks Spread Share Baskets Platforms 0.02 Yes Web, L2 Dealer, MT4, TradingView, AutoChartist, TradingCentral, ProRealTime -
Traders have the opportunity to speculate on top companies in the US, EU, UK, and Australia, including renowned brands such as Tesla and Apple. The platform supports a variety of trading strategies, whether short, medium, or long-term. Algo traders can utilise Expert Advisors (EAs) for enhanced automation. Moreover, a wide selection of indices and ETFs is available for those interested in diversifying their portfolios.
Stock Exchanges Fractional Shares Leverage DAX GER 40 Index, Dow Jones, London Stock Exchange, Euronext, IBEX 35, CAC 40 Index France, FTSE UK Index, Hang Seng, National Stock Exchange Of India, Bombay Stock Exchange, Nasdaq, Japan Exchange Group, S&P 500, Australian Securities Exchange (ASX) No 1:30 Stocks Spread Share Baskets Platforms 0.01 No ProTrader, MT4, MT5, TradingView, DupliTrade
Safety Comparison
Compare how safe the Stock Dilution: What It Means for the Stock Investor are and what features they offer to protect traders.
Broker | Trust Rating | FCA Regulated | Negative Balance Protection | Guaranteed Stop Loss | Segregated Accounts |
---|---|---|---|---|---|
FXCC | ✘ | ✔ | ✘ | ✔ | |
Interactive Brokers | ✔ | ✔ | ✘ | ✔ | |
Forex.com | ✔ | ✔ | ✘ | ✘ | |
Eightcap | ✔ | ✔ | ✘ | ✔ | |
eToro | ✔ | ✔ | ✘ | ✔ | |
IG | ✔ | ✔ | ✔ | ✔ | |
Vantage FX | ✔ | ✔ | ✘ | ✔ |
Payments Comparison
Compare which popular payment methods the Stock Dilution: What It Means for the Stock Investor support and whether they have trading accounts denominated in British Pounds (GBP).
Broker | GBP Account | Debit Card | Credit Card | Neteller | Skrill | Apple Pay |
---|---|---|---|---|---|---|
FXCC | ✔ | ✔ | ✔ | ✔ | ✔ | ✘ |
Interactive Brokers | ✔ | ✔ | ✘ | ✘ | ✘ | ✘ |
Forex.com | ✔ | ✔ | ✔ | ✔ | ✔ | ✘ |
Eightcap | ✔ | ✔ | ✔ | ✔ | ✔ | ✘ |
eToro | ✔ | ✔ | ✘ | ✔ | ✔ | ✘ |
IG | ✔ | ✔ | ✔ | ✘ | ✘ | ✘ |
Vantage FX | ✔ | ✔ | ✔ | ✔ | ✔ | ✘ |
Mobile Trading Comparison
How good are the Stock Dilution: What It Means for the Stock Investor at mobile trading using apps or other mobile interfaces.
Broker | Mobile Apps | iOS Rating | Android Rating | Smart Watch App |
---|---|---|---|---|
FXCC | iOS & Android | ✘ | ||
Interactive Brokers | iOS & Android | ✔ | ||
Forex.com | iOS & Android | ✘ | ||
Eightcap | iOS & Android | ✘ | ||
eToro | iOS & Android | ✘ | ||
IG | iOS & Android | ✔ | ||
Vantage FX | iOS & Android | ✘ |
Beginners Comparison
Are the Stock Dilution: What It Means for the Stock Investor good for beginner traders, that might want an affordable setup to get started, along with good support and educational resources?
Broker | Demo Account | Minimum Deposit | Minimum Trade | Support Rating | Education Rating |
---|---|---|---|---|---|
FXCC | ✔ | $0 | 0.01 Lots | ||
Interactive Brokers | ✔ | $0 | $100 | ||
Forex.com | ✔ | $100 | 0.01 Lots | ||
Eightcap | ✔ | £100 | 0.01 Lots | ||
eToro | ✔ | $50 | $10 | ||
IG | ✔ | $0 | 0.01 Lots | ||
Vantage FX | ✔ | $50 | 0.01 Lots |
Advanced Trading Comparison
Do the Stock Dilution: What It Means for the Stock Investor offer features that allow for more advanced trading strategies?
Broker | Automated Trading | Pro Account | Leverage | VPS | AI | Low Latency | Extended Hours |
---|---|---|---|---|---|---|---|
FXCC | Expert Advisors (EAs) on MetaTrader | ✘ | 1:500 | ✔ | ✘ | ✔ | ✘ |
Interactive Brokers | Capitalise.ai, TWS API | ✘ | 1:50 | ✘ | ✔ | ✔ | ✔ |
Forex.com | Expert Advisors (EAs) on MetaTrader | ✘ | 1:30 | ✔ | ✔ | ✔ | ✘ |
Eightcap | TradingView Bots | ✘ | 1:30 | ✔ | ✘ | ✔ | ✘ |
eToro | Automate your trades via CopyTrader - follow profitable traders. Open and close trades automatically when they do. | ✘ | 1:30 | ✘ | ✔ | ✘ | ✔ |
IG | Expert Advisors (EAs) on MetaTrader, build your own on ProRealTime | ✔ | 1:30 (Retail), 1:222 (Pro) | ✔ | ✔ | ✔ | ✔ |
Vantage FX | Myfxbook AutoTrade, Expert Advisors (EAs) on MetaTrader | ✘ | 1:30 | ✔ | ✘ | ✘ | ✘ |
Detailed Rating Comparison
Use this heatmap to compare our detailed ratings for all of the Stock Dilution: What It Means for the Stock Investor.
Broker | Trust | Platforms | Mobile | Assets | Fees | Accounts | Support | Research | Education |
---|---|---|---|---|---|---|---|---|---|
FXCC | |||||||||
Interactive Brokers | |||||||||
Forex.com | |||||||||
Eightcap | |||||||||
eToro | |||||||||
IG | |||||||||
Vantage FX |
Our Take On FXCC
"FXCC remains a top choice for forex traders, offering over 70 currency pairs, very tight spreads from 0.0 pips in tests, and high leverage up to 1:500 with the ECN XL account."
Pros
- FXCC is a trusted and licensed broker under the regulation of CySEC, a leading European authority ensuring excellent safeguarding standards.
- There are no deposit fees other than standard cryptocurrency mining charges, which benefits active traders.
- There are no limitations on short-term trading techniques such as trading and scalping.
Cons
- The variety of currency pairs surpasses most options, but the choice of other assets is limited. Notably, stocks are absent.
- While the MetaTrader suite excels in technical analysis, its outdated design detracts from the overall trading experience, particularly when contrasted with contemporary platforms such as TradingView.
- Unaware traders might face steep withdrawal fees, such as a notable $45 for bank transfers.
Our Take On Interactive Brokers
"Interactive Brokers ranks highly for seasoned traders due to its robust charting platforms, live data, and bespoke layouts via the new IBKR Desktop app. Its competitive pricing and sophisticated order choices appeal to traders, and its wide equity options are industry-leading."
Pros
- Interactive Brokers has introduced ForecastTrader, an innovative product offering zero-commission trading with yes/no Forecast Contracts on political, economic, and climate events. It features fixed $1 contract payouts, 24/6 market access, and a 3.83% APY on positions held.
- The new IBKR Desktop platform combines the top features of TWS with customised tools such as Option Lattice and MultiSort Screeners, providing an impressive trading experience for traders of all skill levels.
- A wide range of third-party research subscriptions, both free and paid, are available for traders. Additionally, by subscribing to Toggle AI, traders can receive commission rebates from IBKR.
Cons
- IBKR offers a variety of research tools, but their inconsistent placement across trading platforms and the 'Account Management' webpage creates a confusing experience for users.
- The learning curve for TWS is quite steep, making it tough for novice traders to navigate and grasp all its features. In contrast, Plus500's web platform is far more accessible for those new to trading.
- Support can be sluggish and frustrating. Tests reveal that you may face challenges reaching customer service quickly, which could result in delays in issue resolution.
Our Take On Forex.com
"FOREX.com excels in serving traders of all levels, offering more than 80 currency pairs, spreads starting at 0.0 pips, and competitive commissions. Its robust charting platforms provide over 100 technical indicators and comprehensive research tools."
Pros
- An abundance of educational resources is available, such as tutorials, webinars, and an extensive YouTube channel, designed to enhance your understanding of financial markets.
- The in-house Web Trader remains a standout platform, excellently crafted for budding traders. It features a sleek design and offers more than 80 technical indicators for thorough market analysis.
- With more than two decades of expertise, strong regulatory governance, and numerous accolades, including a second-place finish in our 'Best Forex Broker' awards, FOREX.com is globally renowned as a reliable trading platform.
Cons
- US clients are not protected against negative balances, which means you could end up owing more than your initial deposit.
- Demo accounts are typically limited to 90 days, hindering effective strategy testing.
- Funding choices are restricted when compared to top options such as IC Markets. Many popular e-wallets, including UnionPay and POLi, are noticeably absent.
Our Take On Eightcap
"Eightcap excels for traders, offering diverse charting platforms, educational Labs, and AI tools. With over 120 crypto CFDs, it stands out in crypto trading and has won our 'Best Crypto Broker' award twice consecutively."
Pros
- With spreads starting at 0 pips, minimal commission charges, and leverage up to 1:500 for select clients, Eightcap delivers affordable and flexible trading opportunities. These conditions suit various strategies, such as trading and scalping.
- Eightcap excels with a suite of advanced trading tools, such as MT4 and MT5, and has recently joined the 100-million-user social trading network, TradingView.
- Eightcap has excelled in all essential trading areas, surpassing all rivals to clinch our 'Best Overall Broker' award for 2024. It also earned the titles of 'Best Crypto Broker' and 'Best TradingView Broker' for 2025.
Cons
- Eightcap must enhance its range of over 800 instruments to rival top competitors like Blackbull Markets, which offers 26,000+ assets, especially improving its limited commodities selection.
- The demo account is available for 30 days, after which it requires a request for extension. This is less convenient than XM's offering, which provides an unlimited demo mode.
- Despite the growing range of tools available, Eightcap lacks popular industry resources such as Autochartist and Trading Central. These provide advanced charting analytics, live news, and essential market insights for traders focused on short-term strategies.
Our Take On eToro
"eToro's social trading platform excels with its outstanding user experience and lively community chat, aiding beginners in spotting opportunities. It offers competitive fees on numerous CFDs and real stocks, alongside exceptional rewards for seasoned strategists."
Pros
- The broker offers excellent services for beginners, featuring commission-free stock trading, a low minimum deposit, and an unlimited demo account.
- Diverse investment portfolios are accessible, encompassing traditional markets, technology, cryptocurrency, and beyond for traders.
- Utilising TradingView, the charts provide robust tools for technical analysis, featuring nine chart types and more than 100 indicators.
Cons
- The only significant contact option, besides the in-platform live chat, is limited.
- The minimum withdrawal is set at $30, accompanied by a $5 fee. This may impact traders with limited funds, particularly those just starting out.
- The absence of extra charting platforms such as MT4 may deter experienced traders who rely on external software.
Our Take On IG
"IG offers a complete package with an intuitive online platform, top-tier beginner education, advanced charting tools through its TradingView integration, real-time data, and swift execution for seasoned traders."
Pros
- The ProRealTime advanced charting platform remains free, provided traders meet modest monthly activity requirements.
- The web-based platform supports traders at every level, offering advanced charting tools and real-time market data vital for trading. Additionally, IG now includes TradingView integration.
- IG provides a wide range of professional and engaging educational materials, such as webinars, articles, and analyses, tailored for traders.
Cons
- In the UK and EU, negative balance protection is available. However, US clients lack account protection and guaranteed stop losses.
- Beginners may find IG's fees complicated, as they vary depending on the trades or services. This could cause confusion and unexpected costs.
- Based on tests, stock and CFD spreads remain less competitive than the lowest-cost brokers, such as CMC Markets.
Our Take On Vantage FX
"Vantage is an ideal choice for CFD traders looking for a well-regulated broker with access to the dependable MetaTrader platforms. With a swift sign-up process and a minimum deposit of $50, starting trading is simple and fast."
Pros
- ECN accounts offer competitive terms, featuring spreads starting at 0.0 pips and a commission of $1.50 per trade side.
- Vantage has enhanced its trading tools for experienced traders, introducing AutoFibo EA to pinpoint potential market reversals.
- With a minimal deposit requirement of just $50 and no funding fees, this broker stands out as an excellent option for novice traders.
Cons
- It's unfortunate that some clients must register with the offshore firm, which provides reduced regulatory safeguards.
- Based on tests, average execution speeds of 100ms to 250ms are slower compared to other options.
- Regrettably, cryptocurrencies are accessible solely to clients in Australia.
How Stock Dilution Occurs
The main reason behind any stock dilution is either to raise capital, or to conserve cash. There are three common ways by which stock dilution occurs:
a) During a public offering, shares are created out of existing shares so that a percentage of the company can be sold to the general public.
b) Certain assets are deemed to be convertible. Warrants, options, rights and convertible bonds can be converted into stocks. This usually requires some exchange of money and that is why companies who are in need of finance do not mind giving out some of their stock in exchange for convertible derivatives.
c) In some situations, a company may decide to either reward or compensate its workers in other methods apart from cash. An easy way to save that cash is to simply give out part ownership of the company in the form of stock options.
Now that we have an idea of what stock dilution is all about, whay are we even talking about it? What does a stock dilution mean to a stock investor?
A stock dilution has an impact on the value of the investor’s shareholdings as well as the value of the stock price in the following ways:
- There is a reduction in the earnings per share of the stock investment.
- Stock dilution reduces the controlling power of existing investors.
- The share price of the stock will drop.
- Reduction in market value of the shares in question.
Reduction in EPS
A reduction in the earnings for every share held by a shareholder is a common scenario seen in companies that use stock options as a method of reward or compensation to employees. Indeed anytime there is conversion of convertible derivatives into common stocks, there is a reduction in the degree of earnings that a share can produce.
Reduction in Controlling Power of Investors
When stock dilution occurs, the control that existing shareholders have over the company is equally diluted. Where a few persons were in total control of the activities in the company, a diluted stock situation now brings in other shareholders, many of whom have no idea of the company’s ideals or direction and whose interests may not necessarily be that of the company. This was the situation that caused the exit of Steve Jobs from the company he founded.
Stock dilutions can impact negatively on the process by which decisions are taken in the affected company, especially if the new shareholders have voting rights that give them the power to move away from the policy direction of the original shareholders.
Reduction in Market Value/Share Price
With so many shares created, there is a supply-demand imbalance which can cause the price of the stock to drop, especially if workers who have been compensated with stock options decide to cash out their holdings.
Another scenario is seen in the Pink Sheets/OTCBB markets, where companies with nano-priced stocks sometimes engage in follow-on offerings. The company founders issue additional shares and sell to the public as a means of making money, and then engage in reverse-stock splits, which end up ballooning the number of outstanding shares. Since the money realised from such secondary stock offerings is never really channelled into any productive ventures that will increase the company’s earnings, the end-result is a dampening of the value of the stocks of these companies.
Another example of reduction in market value and share price as a result of stock dilution is seen during an acquisition process. Acquisitions can be done using cash-only, cash + stock options or 100% stock options payment models. Acquisitions that utilize stock options usually leave the new entity with an increased number of outstanding shares which could potentially lead to a value dilution.
How to Get Around Stock Dilution
Unfortunately, stock dilutions are an integral part of many companies in the corporate world, and in some places, it is seen as a right and part of the welfare package for workers. If you are investing in such companies, then there is almost no way to get around stock dilutions. This means that for such an investment to become really profitable, the company’s earnings has to outperform the value reduction brought on by the stock dilution process.
As such, there are questions that an investor in a company with diluted shareholdings must ask?
a) What is the capital generated by a primary or secondary offering to be used for? This is a dilemma that current Facebook shareholders are facing. Without a solid model for mobile advertising in place to maximally monetize its close to 900million users, the stock price of Facebook has lost close to 40% of its value since its IPO. Before investing in a company with a diluted shareholding, make sure there is a solid revenue model in place that will outperform the expected value reduction caused by the dilution.
b) What are the fundamentals of the company? Is there a product which will command marketplace demand? Companies like Google and Apple have all had IPOs and secondary offerings, but because these companies have solid products that command marketplace attention, the stocks have outperformed any dilutional value reductions they incurred during their share offerings.
This is why it is very important to engage the services of professionals before buying any stock. The information that can be gained from such services is invaluable, as it can prevent an investor from putting his or her money into a drainpipe.