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How to Buy and Trade Stocks in Canada

Written by Jessica Steer
Getting started buying and trading stocks in Canada is becoming easier by the day. Gone are the days when the only way to participate in the stock market was through a personal financial advisor. Today, investors of all stripes are buying and trading stocks on their own and doing it easily through an online broker or bank.
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    Technological advancements have made the stock market more accessible, leading to a surge of interest from new investors in recent years. With interest rates on savings accounts a mere pittance, many are looking for new vehicles to increase returns on their money. Yes, stocks present more risk and volatility than a savings account, but they also offer a chance to earn a much higher return.

    Like any financial decision, getting started buying stocks should not be done in haste; you need to do your homework first. We’re going to help you by providing some foundational knowledge about how to buy stocks in Canada. After reading through our guide, you should have a clear roadmap on how to make your first stock buying investment. And who knows, maybe you’ll become the next Warren Buffet!

    How to trade stocks in Canada

    Trading stocks in Canada is surprisingly easy. You certainly don’t need a business degree. But what you do need is an investment account with either a bank or a broker, which is a go-between an investor and a stock exchange. Major banks like CIBC, with its Investor’s Edge service or TD Direct Investing, offer full-service platforms that put trading in your hands but charge fees for the service.

    However, banks aren’t your only option. Online brokers like Wealthsimple Trade and Questrade offer pure online investing services with no physical storefronts. Their overhead is lower than banks and can afford to offer no-fee trades (Wealthsimple) or fees substantially lower than banks (Questrade).

    Before setting up an investment account with either the brokers or banks, you should have some starting capital, a sum of money ready to invest, and perhaps some idea of what kind of investment vehicle you are looking for stocks, ETFs, mutual funds, bonds, or another kind of investment.

    One more way to buy and sell stocks in Canada is to use a human broker – generally someone who works at a financial institution specialized in equities trading. This is a highly personalized service usually reserved for investors with large sums to deploy into the market. It also comes with the highest fees, and typically not the right starting point for a new investor with limited capital.

    Things to Do Before You Invest

    Working with a broker is a great first step when it comes to investing as a beginner. That said, you shouldn’t stop there. It’s important that you do your research and pay attention to the markets. Study a bit and get a handle on the terminology as well as some of the ins and outs of stocks you’re interested in. This gives you a baseline to start with. From there, there are brokers that can help you discern the details. If you choose to go with an online broker, there are plenty of online resources that help you learn how the markets work and show the history of different stocks.

    How to trade stocks online in Canada

    You’ve probably seen the images of online traders with their multiple computer monitors displaying endless reams of financial data. Online trading doesn’t have to be that complicated. Today’s online trading services are user-friendly and as easy to use as any other type of online banking platform. In fact, many young investors are using mobile apps for their stock trading. A stock trade can be done in a few clicks on your phone.

    The leading online brokers in Canada are Wealthsimple and Questrade. Wealthsimple has soared in popularity thanks to its ability to offer no-commission trading, while Questrade charges fees that start at a penny per share. In that scenario you would pay one dollar for every 100 shares you buy or sell. For comparison, banks typically charge a flat fee of around $10 per trade.

    Another major difference between Wealthsimple and Questrade is the former requires a minimum $1,000 savings to get started trading with a brokerage account. Wealthsimple, meanwhile, has no such restrictions, which should appeal to new investors with limited capital.

    These brokers also offer more passive investing options, meaning you don’t need to spend all your time researching companies and trading stocks. That can be too much commitment for some. A “robo-advisor” is a term used to describe a process where you essentially let a computer invest for you. The computer, or robo-advisor, uses algorithms to find high-performing ETFs and other securities that bring you a positive rate of return over time. It’s an option for those who have a “set it and forget it” mentality for stock market investing.

    When to Buy Stocks as a Beginner

    Buying stocks can be tricky. When you’re starting to purchase, it’s important to pay attention to what the current price of the stock was and what it is now. Ideally, you want to purchase stocks at a lower price in order to be able to sell them at a higher price. The history of the stock will show you what you need to know and help you make an educated guess on what the future of the stock will be.

    How to trade stocks through your bank in Canada

    Most of the major banks in Canada offer platforms for Direct Investing, which allows you to buy and sell stocks yourself or with the assistance of a bank associate. Each bank will charge a broker fee, usually per transaction.

    For example, TD Direct Investing charges a $9.99 flat fee for every online trade you make – whether it is a US stock or Canadian. RBC Direct Investing has a $9.95 flat fee per online or mobile trade. In true Canadian bank fashion, the price difference between competitors is negligible.

    It might suit you to shop around for the best fee rates before opening an account. However, the path to least resistance might also be to set up an account with a bank you are already using. That way you can easily transfer funds from your other accounts when it comes time to make a stock trade or other investment.

    How to trade Canadian stocks

    The TSX and Canadian Securities Exchange are the main stock exchanges in Canada. The TSX, which stands for Toronto Stock Exchange, is the biggest and you can find most Canadian public companies listed either on the main exchange or the TSX Venture Exchange for “junior” public companies. A public company is one you can buy shares in.

    Trading Canadian stocks merely requires signing up for a trading platform either through a bank or an online broker. Opening an account requires details like your home address and social insurance number. It’s an easy process – similar to signing up for any other kind of online account.

    Investing in the Canadian stock market will depend on your interests, research, and which sectors you feel confident will perform over time.

    Here are the most frequently traded sectors on the TSX:

    • Financial companies like banks, credit unions, and mutual fund companies (36%)
    • Energy sector companies like oil & gas extraction (20%)
    • Material companies like mining and forestry (10%)
    • Industrial companies like construction, engineering, and transportation infrastructure (8%)
    • Consumer Discretionary, Telecom, Healthcare, IT, Consumer Staples, and Utilities round out the rest (26%)

    Smaller public companies will list on the Canadian Securities Exchange (CSE). The TSX, TSX-V, and the CSE, should all be available for trading through the broker of your choice.

    How to pick the best stocks to buy

    Picking the right stocks to begin your investment portfolio will depend on many different factors, such as the price of the shares, past performance (which does not always predict future profits), whether the company aligns with your values, and if you believe in the long-term profitability of the company.

    The best advice for new investors is to make sure you are diversified. In other words, don’t put all your stock picks in one basket. Spread out your portfolio so that in the case of a downturn in one sector, or an underperforming company, your portfolio doesn’t get overly impacted. This is called reducing your exposure to risk.

    Stocks by nature come with risk because they can be volatile. Companies and financial institutions can falter, geopolitical events can impact economies; the reasons for stocks to nosedive are plenty and out of your control. So your best defence against risk and uncertainty is a diversified portfolio with investments in multiple sectors. As the saying goes, a smart investor is a diversified investor.

    In the unlikely event that an investment broker folds, there is something called the Canadian Investor Protection Fund (CIPF), whose goal is to recoup property, like shares and cash, if such a scenario occurs.

    Another investment strategy for reducing risk and exposure to volatility is to invest in low-cost ETFs, both domestic and international. ETFs (exchange-traded funds) are baskets of multiple stocks – sometimes hundreds – which means the fund won’t be significantly impacted by one underperforming stock.

    An example would be buying a tech-focused ETF that contains shares in multiple tech companies like Facebook (Meta), Tesla, Apple, Google, and Netflix. If Netflix falters, the ETF will take less of a hit than an investor who only owns shares in Netflix. ETFs, unlike mutual funds, can be purchased on stock exchanges.

    How much do you need to buy stocks in Canada?

    If you’re thinking about getting into investing, it will help your journey to have an initial sum of money to start with. Some online brokers, like Questrade, require a minimum starting sum of $1,000, which would be enough to start a diverse portfolio of public companies. If you’re hoping to own shares in marquee companies like Google or Tesla, be prepared to pay a premium. One Tesla share, for example, currently costs over $1,000.

    Banks usually do not require a minimum amount to get started investing, which is good news for new traders with limited means. Even if you have a few hundred dollars, you can find some “value stocks” – shares with price ranges under $10 – and start a new position by buying shares in a company. Theoretically, you can start buying stocks with $25 in your investing account, so don’t be intimidated – you don’t need a Bill Gates bank account to start investing.

    How to buy stocks without a broker in Canada

    You do have options if you’re uncomfortable with opening an investment account via a bank or an online broker. If you want to buy stocks without a broker, there are some companies that offer what’s called a Direct Stock Purchase Plan (DSPP). A DSPP allows you to buy shares directly from a company without the assistance of a broker.

    Some benefits to a DSPP can be a discount in the price of shares or low fees on the transactions. There is often a minimum deposit in the $100 to $500 range to get started. However, these plans usually involve monthly, automated payments to buy more shares over the long term. You need to be committed to the company for such a regular investment. DSPPs are a common workplace compensation benefit, so if you work for a public company check with your payroll admin for its availability.

    An example of companies that offer DSPPs are Walmart, Coca-Cola, Starbucks, and Home Depot. Many of these companies use what’s called transfer agents, which act as middle-men between the investor and the company. These agents, such as Computershare, usually charge very low fees for their service.

    A big downside to buying stocks through DSPPs is primarily the limitation of choice. With banks and online brokers making the process of buying stock increasingly accessible, more and more companies have dropped their DSPP programs. It is not advisable to invest in a company just because they offer a DSPP that will save you on broker fees. You should invest because you believe in the company and have done your due diligence on its financial outlook.

    How old do you have to be to invest in stocks in Canada?

    Investing in stocks in Canada is certainly not a kids’ game. Money can be lost as quickly as it can be earned – and if you’re going to invest without doing your homework you might as well take your money to a casino. That’s why investing in stocks in Canada requires the investor to be of the age of consent. Most provinces require you to be 18 or 19 to open a trading account.

    Anyone under the age of consent who wants to start investing in the stock market would be wise to ask their parents for assistance. If there is a company you really believe in, ask your parents to buy the shares for you maybe as a birthday present. Or they can open a trust account and hold those shares until you reach the required age. With any luck the shares will be worth much more by the time you take control of them.

    How can beginners invest in stocks in Canada?

    Don’t be hamstrung trying to perfectly time your plunge into the stock market. The truth is you will never be able to time it perfectly because nobody knows what tomorrow will bring. What we do know is if you look at the long-term trajectory of stocks, it generally always goes up and rewards the investor. And the stock you don’t buy today could be more expensive tomorrow. Even the most experienced investors struggle with timing the market, so it’s best just to jump in and show “paytience” during the market’s ups and downs.

    If you’re the type thinking you can jump in the stock market, pick a winner, make a bundle, and eject with a pile of money at the exact right moment, then you are a rare breed. That attitude is more fitting at the roulette wheel.

    A common misstep for beginners is to get caught up by the glamourous stocks that grab all the headlines. We’re talking Apple, Tesla, GameStop, Amazon, etc. These are expensive stocks that will eat away your entire initial investment fund. A possible better option for beginners who want to own these prestige stocks is to buy ETFs or fractional shares. While a stock like Amazon is well above $2,000 a share, you can now buy a fraction of one share. This way you get the prestige stock in your portfolio, plus it leaves you funds to diversify and invest elsewhere. There is an oft-stated rule that you should never let one investment represent more than 5% of your entire portfolio.

    Online stock trading in Canada for beginners

    Your first step to online stock trading will be opening an investing account with either a bank or online broker. It should only take about 10 minutes to provide some personal details and accept the terms and conditions. You will then need to transfer money into the investing account from your bank account usually through an EFT (electronic funds transfer). If your new investing account is with your pre-existing bank, the transfer should be quick and seamless from your chequing or savings account. If you are transferring money from a registered account like an RRSP or TFSA, the process gets more complicated.

    Once you have your online trading account set up, you will see the option to buy and sell stocks on the user interface. Here’s a quick and basic user guide to buying a stock online. Keep in mind online investing accounts will all look a little different.

    1. Select Buy Stock and enter the symbol of the company you want to buy shares in. You can use Google or Yahoo! Finance to find the company’s symbol.
    2. Choose whether the stock is traded on a Canadian or US market.
    3. Input how many shares you want to purchase. Make sure you have enough funds to cover the cost of the order, including a transaction fee if there is one.
    4. Select market price or a limit price you are willing to pay. Market price is the current price of the share. A limit price is the max amount you are willing to buy the share during the trading session (an order will be triggered if the share hits your price during a trading session).
    5. Confirm your order and wait for a notification that your order has been filled. If there is a problem with your order, it will go unfilled, and you may receive a notification.

    And speaking of TFSAs, the tax-free savings account is a great financial vehicle to buy stocks with. By trading with a TFSA account, you can avoid getting taxed on your capital gains.

    How to make money on stocks in Canada?

    Making money on stocks comes from holding shares that gradually, or rapidly, increase in price from what you initially paid for them. An example would be if you bought 100 shares of Starbucks at $75 per share for the price of $7,500. After holding the stock for two years, Starbucks share price increases to $95 per share. Your investment has become worth $9,500.

    What causes a stock price to rise? It’s usually determined by what the market as a whole thinks of Starbucks’ business performance. If the company is outperforming market expectations by delivering quarterly earnings reports that beat analyst expectations and show continued growth, the share price will rise. If the company reports losses, increased overhead and declining revenue, the share price will head south.

    One of the biggest challenges of being a new investor is mentally computing all the Wall Street jargon that comes with understanding a company’s financial reporting. Acronyms like EPS (earnings per share) and EBITA (earnings before interest, taxes, and amortization) are commonplace and key performance indicators for a public company.

    What makes stocks profitable versus more safe-harbour vehicles like a savings account is what’s called Equity Risk Premium. This is a fancy way of saying no risk no reward. Safe investment choices like savings accounts or government bonds carry no risk and have lower returns. By taking on more risk, you create an opportunity for higher rewards. Stocks are volatile with peaks and valleys, but over the long-term they tend to outperform risk-free options.

    Stock market terminology explained:

    Stocks – Also known as equities, a stock represents a fractional ownership of a public company. It is bought and sold on a stock exchange and regulated by governments.

    ETFs – Stands for Exchange-Traded Funds, these funds are baskets of stocks from multiple companies and can be traded on the stock exchange. One share of an ETF represents a fractional ownership in all companies within the fund.

    Bonds – Bonds are usually issued by governments for the purchase of investors looking for a fixed-rate of return. Think of it as an I.O.U., with the government borrowing money from an investor with a guaranteed rate of return for a set duration of time.

    Mutual funds – This is an investment vehicle that compiles multiple different forms of investments, including stocks, bonds, and more. These are typically managed by financial advisors who work to produce beneficial returns for everyone invested in the fund.

    EPS – Earnings per share (EPS) is a company’s profits divided by all the outstanding shares of stock. The resulting figure indicates positive or negative performance of a company. It is not uncommon for companies to buy their own shares to boost EPS.

    EBITA – Earnings before interest, taxes, and amortization (EBITA) is considered a measurement that indicates true earnings because it cannot be manipulated like EPS. It gives you a clear indication of a company’s cash flow.

    Spring Financial can help kick start your investments strategy

    Getting started investing in stocks is going to take some initial capital. Spring Financial can help you make that initial investment with some “seed money” via a personal loan. The loan can benefit you in two ways – providing capital to get started buying stocks in Canada, as well as help you build your credit by paying back the loan. Talk to a representative at Spring Financial to learn more.

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