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On some trading apps, when you buy a normal stock, they say "You are buying the underlying asset". I'd like to know what this means... Is it a "positive" message, like "Just know that you are buying the actual thing here" or is it something more shady?

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It means you are buying ownership of actual shares and all that goes with that. Other ways to gain an interest in a company might be more indirect. Examples include derivatives (futures, options, CFD and others), funds where you get a share of an owning fund, not the company itself, ADR type instruments (a kind of proxy for owning the thing). A custodial arrangement is also somewhat indirect but essentially the same as ownership.

Where I am (Australia) you cannot trade fractional shares, so any platform that allows that will be some kind of fund/custody/trust arrangement. Even if all the benefits (divs, DRP, voting etc.) are afforded to you, some middle-man has to sit between you and the underlying stock.

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  • Thanks @LoztInSpace ! So: if the platform asks me to buy a whole share and doesn't allow me to get only a fraction, it means that I am becoming in all senses a shareholder of the company? In my opinion it's better to not have a middle-man, even if I have to pay the price of a whole share, am I right?
    – Lorenzo
    Jul 15 at 9:48
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    One thing doesn't lead to another in the way you suggest. The service may stipulate you can only "buy" whole shares but that does not necessarily mean that you own them directly. It depends very much on what you signed up for and how the platform is structured. Regarding middle men, no, it's not necessarily worse. e.g. if you wanted to invest in, say, Berkshire Hathaway, you'd need $400k+ per share. If your platform allows you a fraction you might be able to invest $1k. That's good for you, right? These things exist for a variety of investment objectives and are not always a scam. Jul 15 at 10:44
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    Got it, thank you for the clear answers @LoztInSpace ! :)
    – Lorenzo
    Jul 15 at 14:26
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    ($400k+ is the price for Berkshire class A shares. Class B is only about $278 right now. Those are reasonable to buy directly.) Jul 15 at 21:13

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