How to buy stocks in Canada: A comprehensive guide
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Updated: October 26, 2023
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Wondering how to buy stocks in Canada, but not sure how to get started? If you're new to investing, check out this beginner's guide on how to get started.
Investing in stocks is easier and more affordable than ever, but you still need to know what you’re doing before you begin. The stock market is volatile and investing is a higher-stakes game than simply stashing money in a savings account. But the reward is higher returns! The stock market has an average annual return of 10%. If you’re wondering how to buy stocks, here’s a step-by-step guide on how to buy stocks in Canada.
How to invest in stocks: A step-by-step guide
Step 1: Open an online brokerage account
Discount brokerages provide an excellent online trading platform for DIY investors to buy and sell securities on their own instead of relying on a human broker to execute transactions. The fees for discount brokerages are rock-bottom, and with a little know-how, DIY investors can take advantage of:
- The flexibility to choose and manage your own investments
- Low- or even commission-free trading
- Low ETF management fees (around 0.15% to 0.5%)
- Access to real-time data, research tools, and analysis
Every big bank in Canada has its own discount brokerage arm, and for many self-directed investors, this can be the most convenient way to start investing on their own. However, there are more affordable options available. For instance, Questrade, Qtrade and Wealthsimple Trade are Canada’s leading low-cost brokerages in Canada.
DIY investors have been using Questrade for its low fees and excellent customer service for more than 20 years. With their affordable trading fees, including free ETF purchases, and super-easy online trading platform, Questrade is consistently one of our top pick for the best online brokerage in Canada.Start trading with Questrade
Qtrade Direct Investing™ is a Canadian investment platform from Aviso Wealth, which offers commission-free ETFs as well as stocks, options, mutual funds, options, and more. Qtrade also provides educational resources for beginners and intermediate traders and attractive sign-up bonuses.Start trading with Qtrade
Wealthsimple Trade is also a great option, as it doesn’t charge any commissions on buying individual stock or ETFs trades. Plus, Wealthsimple Trade will reimburse an outgoing administrative transfer fee of up to $150 on investment account transfers valued at more than $5,000.Start trading with Wealthsimple Trade
Not sure what platform works best for you? Read our comprehensive comparison on Wealthsimple Trade vs. Questrade.
Step 2: Open a tax-sheltered investment account
If you’re just getting started with investing, you need to decide whether to invest inside an RRSP, TFSA, or a non-registered account.
An RRSP gives you a tax deduction on contributions, but you’ll pay income taxes on withdrawals in retirement. In contrast, you don’t get a tax deduction for TFSA contributions, but you can withdraw funds tax-free at any time. RRSPs and TFSAs tax-shelter your investments, meaning, there are no taxes on your investment income like dividends, capital gains, or interest earned within the account.
Debating TFSA vs. RRSP? A general rule of thumb is that an RRSP makes sense for high-income earners, while a TFSA makes sense for lower-income earners. And if you can afford to contribute to both, that’s great! If you’re leaning towards a TFSA, check out the best TFSA investments in Canada to help you get started. Only once you’ve maxed out your RRSP and TFSA can you open a non-registered or taxable account to invest.
Most online brokers support multiple account types, such as joint investment accounts, corporate accounts, or Locked-in Retirement Accounts (LIRAs), allowing you to manage all your investments in one place.
Step 3: Fund your account
You can’t invest in stocks without money! Once your brokerage account has been opened, you need to fund it. Ideally, you should start with at least $1,000 in your account to invest in the stock market, but more is always better.
Once you make your initial deposit to your investment account, you should also set up an automatic monthly or bi-weekly contribution. This ensures you are consistently building your portfolio and always have the cash to take advantage of market dips!
Read more: How to transfer your TFSA or RRSP to Questrade
Step 4: Pick your investing approach
When investing in the stock market, you need a plan. If you don’t have a trading plan, you’re likely to make emotional decisions instead of financial ones and can end up worse off than if you had not invested at all! Here are some approaches to investing to consider:
The easiest approach to take is a relatively hands-off index investing or passive investing approach. With an indexing strategy, you simply buy an ETF or index mutual fund that tracks a broad stock market index, like the S&P 500 or TSX Composite Index. You can build a diversified portfolio with just one to four ETFs that make up the Canadian, U.S., and international stock markets, plus corporate or government bonds.
Index investing is stress-free because your portfolio will do whatever the market is doing. It removes human error and emotion from the investing experience. The only downside is it’s a little boring. But for most people, boring is good!
Read more: The best ETFs in Canada
Dividend investing is one of the most popular investment strategies because everyone loves a passive income stream. There are pros and cons to dividend investing, but overall, dividend stocks tend to perform exceptionally well over the long term.
Sticking with blue-chip dividend stocks can help investors weather any market storm, as those steady dividend payments keep coming in even when markets are rocky. If you like the stability of regular cash flow, then dividend investing is a great portfolio strategy.
Read more: The best dividend stocks in Canada
For those with more risk tolerance and who want greater control over their portfolios, choosing individual growth stocks is the way to go. Whether it’s Amazon, Facebook, Netflix, or Tesla, we all have our favourite “story” stocks, and it can be enjoyable to invest your money in these companies and go along for the ride.
Growth stocks tend not to pay dividends until they become more mature (like Apple) but have the potential to earn capital gains. If you don’t need a steady cash flow and want some excitement in your life, growth stocks are the way to do it.
Step 5: Research stocks and ETFs to buy
Once you have an idea of your portfolio strategy, it’s time to research your investments. Doing so is fairly straightforward and can even be done directly in your brokerage account.
I personally like to use a website like Yahoo! Finance or Marketwatch to research my stocks. You can look up stocks directly in your brokerage like Questrade or Wealthsimple Trade, but the stock prices typically lag 15 minutes behind the actual market data, which is why I choose financial websites instead.
When you look up a stock, the most important information will be shown in the summary, including the current price, 52-week range, dividend, and more. You can dig deeper into the financials of the stock of your choice right there or view official documents on their website under “investor relations”.
Doing your due diligence is an important part of being a good investor, but it definitely takes work. Here are a few things to consider when buying a stock:
- Price: What is the current stock price? Is this a recent high or low for the stock? Is it a fair price for the value you will be getting?
- Dividend: If you are a dividend investor, you will want to know, does the stock pay a dividend? If so, how much? Does the dividend payout ratio suggest the dividend is sustainable or is there a risk of it being cut in the future?
- Market and industry trends: How is the industry expected to perform going forward? Will this company be able to hold its own and grow?
- Performance: How has the stock performed over time, particularly relative to competitors? Are there any concerns about management?
- Future projections: How is the stock expected to perform going forward? Are there lots of room for growth, or is it expected to cool down from here?
Read more: The best ETFs in Canada for young Canadians
Step 6: Make your trades
Once you’ve established your portfolio strategy and chosen your investments, it’s time to make your trades!
The first thing to note is that you can only make trades during stock market hours. The Toronto Stock Exchange and the New York Stock Exchange are open Monday through Friday from 9:30 a.m. to 4 p.m. EST and closed for Canadian or U.S. holidays, respectively.
If you can’t trade during regular market hours, you can always set up trades outside market hours to be executed when the market opens. This is also a great way to automate your portfolio, so you avoid making emotional buy or sell decisions.
Before you make your first trade, there are a few things you need to know:
The stock price displaced in your brokerage account or on a website sharing market data is the stock’s price at its last trade. For very actively traded stocks, you may see the price fluctuate every few seconds by small amounts. For less actively traded stocks, the price changes less frequently but may do so at larger amounts. The stock price isn’t necessarily the price you will pay or get for a stock when you trade it. That’s determined by the bid or ask price.
The bid price is how much buyers are willing to pay or what they are “bidding” for the stock. This is the amount you will get when you sell a stock in a market order. If you think the bid price is too low, you can set up a limit order for a higher sale price and see if it gets filled.
The ask price is how much the seller is asking for a stock. This is the amount you will pay when you buy a stock with a market order. If you think the ask price is too high, you can set up a limit order for a lower purchase price and see if it gets filled.
The Bid-Ask spread is the difference between the bid and ask prices for a security. This can be very narrow or very large depending on the price of a stock, its trading volume, and time of day. The bid-ask spread is how market makers, usually employed by brokerages and experienced traders, make money.
A market order is a trade executed at the market price. Market orders to buy a security are executed at the ask price. Market orders to sell a security are executed at the bid price. These orders are efficient because they’re executed immediately. They make the most sense for long-term investors planning to buy and hold a security and aren’t worried about getting it at a slightly lower or higher price.
A limit order is a trade that will be executed if the price of a security reaches the “limit” that you set. You can set limit orders for maximum or minimum prices, depending on if you are buying or selling a stock. Limit orders ensure you get the best price possible when making a trade, but because your trade doesn’t go through unless the limit price is reached. Limit orders make the most sense for active traders, especially those trading large amounts, for whom even a few cents in a stock price can make a big difference to their bottom line.
Step 7: Optimize your portfolio
Once your portfolio is set up and your money is in the market working for you, you need to do some regular maintenance to keep things running smoothly. Here’s how to optimize your investment portfolio:
Rebalance your portfolio
You should rebalance your portfolio at least once per year and up to four times per year on a quarterly schedule, depending on your needs and trading activity. Rebalancing your portfolio is the practice of selling securities in overweight allocations and buying securities in underweight allocations to get your portfolio back in line with your original selections.
Read more: How and when to rebalance your portfolio
Turn on some DRIPs
DRIP stands for Dividend Reinvestment Plan, and is a way to automate the reinvestment of dividends into more shares of the same security. DRIPs often give you a discount on a stock’s price and let you avoid trading commissions when they are used to buy more shares, keeping your investing costs very low.
Review your goals and risk tolerance
At least once per year, you should review your portfolio to see if it still aligns with your goals and risk tolerance. You will likely find that your needs and wants change with your age, investing experience, and lifestyle. Do an annual check-in to ensure your investment strategy and portfolio are still working for you!
Read more: A guide to asset classes
Can you buy stocks in Canada without a broker?
It’s possible. Some established companies will let you buy stock from them without a broker through a direct stock purchase plan (DSPP). DSPPs were conceived ages ago to let smaller investors buy shares without going through a full-service broker.
You can also buy stocks without a broker through a company’s dividend reinvestment program (DRIP). DRIPs let investors automatically reinvest cash dividends to buy more shares. This helps to save on trading fees for investors that reinvest their dividends regularly.
While investing without a broker is possible, there isn’t any reason to avoid opening a brokerage account. These days, you might consider this as an add-on option. Individual companies will have their own specific instructions on how to sign up for these plans. Search for them online if you’re interested.
Last word on how to invest in stocks
All said and done, choosing between different online brokerages or robo-advisors comes down to finding the one that best suits your needs. If you’re comfortable with DIY investing and ready to pick stocks, give an online brokerage like Questrade a try. So, start investing with Questrade, it’s an excellent way to test-drive the trading platform.
If you’re worried about the time it takes to learn about how to invest in stocks in Canada, consider starting with a robo-advisor like Wealthsimple that can set up a portfolio of ETFs until you figure out the ins and outs of DIY stock picking. It’s a good way to test the waters before picking your own stock with an online brokerage like Questrade.
Whatever you decide, experts agree that investors with the patience to hold a broadly diversified portfolio of investments over a long period, say 20 years, have the best chance of positive gains. Don’t let the fear of the stocks keep you from the rewards that come from investing. It takes a while to learn how to swim, but if you invest early and invest often, you’ll find that you can keep swimming until you eventually reach a beautiful sunny little beach.
Here are a few key terms and core concepts of stock market terminology you should know before diving into the investment world:
A collection of investments owned by an investor, can include stocks, bonds, and ETFs.
A period of falling stock prices.
A period of rising stock prices.
Stock Market Index+
A benchmark used to describe the stock market or a specific portion. It’s also used by investors and investment managers to compare investment returns. A portfolio of an investor’s actively traded stocks that returns 10%, for example, will have underperformed if an index returned 12%. Indexes include the S&P500 in the US and the S&P/TSX in Canada.
Initial Public Offering (IPO)+
The first time a company issues shares on an exchange for sale to the public.
A one to four character alphabetic abbreviation that represents a company on a stock exchange. For example, Apple’s stock symbol is APPL.
Earnings Per Share (EPS)+
The company’s profit divided by the average number of shares in the market. This is an indicator of a company’s profitability.
Price/Earnings Ratio (P/E Ratio)+
The stock price divided by a company’s earnings per share (EPS). An indicator of demand, the P/E ratio determines the price an investor will pay to receive one dollar of the company’s earnings.
A portion of a company’s earnings paid quarterly or annually to people that own the company’s stock. Dividends are not guaranteed even if they’ve been paid in that past.
The price that a buyer is willing to pay for a share.
The price that a seller will accept for a share.
The difference between the lowest ask price and the highest bid price.
A buy or sell request to get carried out right away at the present market value. Provided that there are ready sellers as well as buyers, market orders are usually completed.
A request to sell or buy a stock at a specific rate, or perhaps much better, but is not always guaranteed to be executed. A sell limit order may solely be fulfilled at the limit price or higher, and a buy limit order may strictly be performed at the limit price or less.
As soon as the stock reaches a specific price, a stop-loss order can be placed with a broker to sell or buy. A stop-loss order is typically meant to restrict an investor’s loss on a stock position.
A stop-limit order can be fulfilled at a defined price, or higher, right after a provided stop price has been achieved. As soon as the stop price is met, the stop-limit order ends up being a limit order to sell or buy at the limit price (or higher).
Buying on margin is the act of obtaining cash to purchase securities. The margin is the cash borrowed from a brokerage firm to purchase a financial investment. It’s the difference between the overall value of securities kept in an investor’s account and the loan amount from the broker. It’s considered high-risk because the person is buying investments with money they don’t have, and it’s definitely not a strategy that should be used by beginners.