Wondering how to buy stocks in Canada? Well lucky for you, you have plenty of tools available right at your fingertips, including discount online brokers that can also help keep the price down. All you have to do is sign up, fund your account, and choose which stocks to buy.
But of course, that last part is a lot easier said than done. Not only is there a ton of terminology to get familiar with, but you're also faced with what seems like endless options. It can be completely overwhelming (and discouraging) for a beginner.
So here are 5 easy steps you can take to get started buying stocks for the first time. Once you have these steps nailed down, you'll have a solid foundation to build the rest of your investment knowledge on.
Key Takeaways
- A stock is a small piece of ownership in a company.
- Stocks are risky, because the company could do well or do poorly.
- There are many types of stocks and companies for investors to choose from.
- You buy stocks through a brokerage, either your bank or an online broker.
- Stocks are part of a long-term investment strategy for many Canadians.
What is a stock?
A stock represents ownership in a company. When you buy a share of stock as an investment, you're purchasing a small piece of that company. Many investors use stocks to grow their wealth over time.
There are different types of stocks, like dividend stocks, blue-chip stocks, penny stocks, and preferred stocks.
There’s also a market cap, which is the total market value (size) of the company.
| Market cap type | Market cap range | Characteristics |
|---|---|---|
| Large-cap | $10 billion and above | Stable, established, lower volatility |
| Mid-cap | $2 billion to $10 billion | Growth potential, balance of risk and stability |
| Small-cap | $300 million to $2 billion | Higher growth potential, higher risk and volatility |
| Micro-cap | Under $300 million | Very high risk and volatility, potential for high returns |
Risk: When the company does well, the value of your stock may rise. If it does poorly, it may fall. Stocks are riskier than bonds or savings accounts.
Reward: You may earn dividends from some stocks, which are payments made by the company. You can also sell your stock at a higher price than when you bought it, netting a profit. Though the reward is unpredictable, you have the potential for higher returns with stocks.
The Canadian stock exchange is different from the U.S. exchange, but Canadians can trade on both (though some extra rules apply).
How to buy stocks in Canada: 5 steps
Here are 5 steps you can take if you want to start buying stocks in Canada. Experience is the greatest teacher, so it's best to start small and work your way up as you gain more knowledge along the way.
1. Evaluate your risk tolerance
The first and biggest step of all in the process is to ask yourself what your risk tolerance is for investing. You work hard for your money, you paid tax on it, and now you’re using these after-tax dollars to try and make a few gains in the future.
To assess your risk, ask yourself this: What happens if this hard earned money changes in value? In particular, what happens if it loses value? What then?
Be honest with yourself. You are the best judge of your own behaviour.
When it comes to risk tolerance, most people fit into 1 of 3 categories:
- Low risk tolerance (Conservative): Your main goal is to keep your money stable, even if it means it won't grow much. You'd be tempted to run if the markets hit any type of downswing.
- Medium risk tolerance (Moderate): You could handle some downswing and do want to see some growth, but have a mid-length horizon and want to keep things relatively stable.
- High risk tolerance (Aggressive): You're prioritizing growth above all, even if it means taking on more risk. You'd feel comfortable sitting through major market downswings and likely have a long investment horizon in mind.
2. Choose a broker
The easiest way to get started with buying stocks is to use an online broker. These investment platforms are offered by big Canadian banks as well as specialized companies, letting you do all your investing right on your computer or phone.
Each broker offers services geared toward a DIY investor, but they usually also offer services to help you with your investing choices. Below are 3 good examples of online brokers alongside the fees they charge.
| Online broker | Questrade | Wealthsimple Self-Directed Investing | CIBC Investor's Edge |
|---|---|---|---|
| Cost per trade (stocks) | * 1 cent per share * Minimum of $4.95 * Maximum of $9.95 | * No commission fees | * $6.95 * Special rate of $4.95 if you make more than 150 trades per quarter |
| Accounts available | * TFSA * RRSP, spousal RRSP * LIRA, Locked in RRSP * RIF, LIF * RESP, family RESP * Cash, joint cash * Corporate cash | * TFSA * RRSP * Personal | * TFSA * RRSP * RESP * RRIF * LSRP * PRIF * LIRA * LRIF * US Dollar Registered Accounts * Cash * Margin |
| Promotion | Get a rebate for N/A worth of commission fees | N/A cash bonus when you deposit at least N/A | None |
| Interested? | Learn more | Learn more | Learn more |
If you're not comfortable trading online or going the DIY investing route, you can also speak with an investment or financial advisor instead.
This service is available both on an independent basis, within an investment advisor group, or even from your bank. You of course will be paying a fee for this type of in-person service, but how much will depend on where you go.
3. Choose an account type
When opening an account with the online broker of your choice, you'll have to decide which type of account you're interested in. Most of the consideration here depends on how you want taxes to be treated on the account and when you're going to need the money again.
Here's an overview of the benefits of each main type of investment account you'll likely be able to choose from.
| Investment account | Benefit |
|---|---|
| RRSP | * Tax-sheltered account * Yearly limit that grows as you work * Typically withdrawal at lower tax rate |
| TFSA | * Tax-sheltered account * Yearly limit that grows * Tax-free withdrawals |
| RESP | * Tax sheltered * Student withdrawals at lower tax rate * Government cash incentives to save |
| Non-registered accounts | * No contribution limits * Easier to withdraw funds |
4. Fund your investment account
To fund your investment account, start by choosing an online broker. Follow clear prompts in the investment section for adding funds, making sure to check for any transfer fees.
If your bank and broker differ, expect transfers to your trading account to take a few days. You can set up regular deposits (weekly, bi-weekly, or monthly) or use services like Interac e-Transfer for instant funding.
Cheques or bank draft are also accepted, but this method will take longer to process.
5. Buy stocks
When buying stocks, a fee is typically charged on top of the share price. Each online broker has their own fee structures, but they typically range between $5.99 per trade to $14.99 per trade (depending on the number of shares purchased).
But now the real question comes into play – how do you choose which stock to buy? Let's go over more details about stocks so you can have a better idea of what to look for.
It's time to start investing, but where do you start? Here's everything you need to know about investing in Canada .
How to know which stock to buy
It can be really difficult to pick the right stock, as there's no way of knowing what that future stock price will be. Instead, think about how you can own a balanced portfolio of stocks, a cross-section of successful business that will continue to grow over time.
Remember, buying stock in a company is a signal that you support what they're doing and believe their value will go up over the long term (years, not months or days).
Here are the key steps to finding which stocks you want to buy:
Get familiar with Canada’s stock exchanges
Here’s what you need to know about your stock exchange options:
- Toronto Stock Exchange (TSX): This is the biggest exchange in Canada, where large companies are listed especially in sectors like finance, energy, and mining. There is limited exposure to high-growth sectors like technology. Stocks may be more expensive.
- TSX Venture Exchange (TSXV): This is a marketplace for smaller, riskier companies. Stock prices are cheaper and more volatile.
- Canadian Securities Exchange (CSE): This focuses on small, early-stage businesses. It offers growth opportunities at an affordable price point, but with risk. These can be harder to sell.
- International options: Canadian investors can trade on U.S. exchanges like NYSE and NASDAQ for access to global companies. Diversifying your portfolio is great but you have to deal with currency conversion and tax issues.
- Interlisted companies: Some companies are listed on both Canadian and U.S. exchanges. Be aware of trading fees and currency fluctuations.
Prepare to read stock charts
Use stock charts to understand how well your stocks are performing:
- Price: The current trading price of the stock
- Volume: The number of shares traded, indicating investor interest
- Time frame: Choose daily, weekly, or monthly charts based on your investment strategy.
There are a lot of other technical indicators, but what’s most important is to look for patterns.
Research the stocks you might want to buy
Your stocks should fit your investment goals – here’s how to research stocks and companies.
- Market capitalization: Choose between large-cap, mid-cap, or small-cap stocks based on your risk tolerance. This represents the size and stability of the company.
- Industry or sector: Focus on areas you understand or believe will perform well. Read the company reports and stay up with analysis from financial experts and newspapers.
- Earnings per share (EPS): This indicates a company's profitability. Divide the net income by the number of outstanding shares. A higher EPS suggests better profitability, making the stock more attractive.
- Price-to-earnings (P/E) Ratio: This ratio compares a company’s current share price to its earnings per share. A lower P/E ratio may indicate that a stock is undervalued, while a higher P/E ratio could suggest overvaluation. This helps investors assess if the stock is priced appropriately relative to its earnings.
- Debt-to-equity: This compares a company's total liabilities (debt) to its shareholders' equity. It helps assess a company's financial leverage and risk level.
- Dividend yield: This expresses the annual dividend paid by a company relative to its stock price. A higher dividend yield is good for income-focused investors.
You can use stock screeners to filter stocks based on your criteria, like Google Finance or Morningstar.
Choose stock order type
Here are the different stock order types for buying and selling stocks:
Market order: This buys or sells a stock at the best available price in the market at that time.
- Pro: You can buy or sell immediately
- Con: Prices can fluctuate in volatile markets
Limit order: This sets a specific price at which you want to buy or sell. The order only goes through if the stock reaches that price.
- Pro: You control the price you want
- Con: The order may not be executed if the stock doesn’t reach your set price
Stop order: This sets a stop price, and your stop order becomes a market order when this price is reached. In other words, it’s an automatic sale when your stock drops to a certain level.
- Pro: You protect yourself against losses
- Con: The transaction might occur at a lower price than your stop price, if prices are shifting rapidly
Bid price/ask price: Bid price is the highest price a buyer will pay for a stock. Ask price is the lowest price a seller is willing to accept for a stock. "Spread" is the difference between the two.
Optimize portfolio
An optimized portfolio should balance your risk while meeting your goals and adjusting as you age.
- Diversify: Spread your investments across stocks, bonds, and real estate to reduce risk
- Global exposure: Invest beyond the Canadian markets for better growth potential
- Rebalance: Review your portfolio regularly (at least once a year) to maintain your desired risk level by adjusting your asset allocation
The key is to stay informed. When you keep up with market trends and economic news, you make more informed decisions. Get help from a financial advisor if you need help adjusting your investments in different stages of life.
3 key stock terms to understand
There are many things to consider when buying stocks, so let's take a look at some of the basic terms you'll see floating around.
1. P/E ratio
Let's start with the P/E ratio, which stands for price (of stock) over earnings of the company. This ratio should give you a value of a company, a general sense of if it's over- or undervalued by the market, and give you a sense of when you should buy or sell shares.
The calculation is fairly simple…
P/E ratio = Market value per share / Earnings per share
Figuring out the P/E ratio gives some insight into where the stock is possibly moving. A high P/E ratio means investors are willing to pay a higher price per share today, as they expect future growth. You can also look at the mean P/E ratio for stocks listed on various markets to have a good idea of what to aim for. At the time of writing, it was 29.163 for the S&P 500.
2. Dividends
Others prefer to look at the dividends. This is a monthly or quarterly bonus paid out to shareholders of companies. It's important to note that not every company pays dividends.
Some investors even create what they call "dividend champion lists." The companies on these lists typically have increased their dividend over a large period of time, some over 15 years.
3. Common stocks and preferred stocks
At the most basic level, you can purchase 2 types of stocks – common or preferred. A common stock is what you'll see most often (hence the name). They represent a share in a company and you'll usually be given one vote per share. A preferred stock,on the other hand, usually doesn't come with voting rights.
Another big difference between the 2 types of stocks is your common stock dividends are usually variable, whereas they're fixed with preferred stocks.
Here's an overview of the pros and cons for both options:
| Stock | Pros | Cons |
|---|---|---|
| Common stocks | * Potential for high earnings if held long term * Voting rights (note not all shares may be equal, some companies issue different classes of shares) | * Volatile * Possibility of losing all of investment if company claims bankruptcy |
| Preferred | * Potential for high earnings if held long term * Fixed dividend * Dividend usually performs well, good for income | * Volatile * Possibility of losing all of investment if company claims bankruptcy * Non-voting shares |
4 benefits of buying stocks
Buying stocks is one of the most popular choices for people who are looking to DIY their investments, so as you may imagine, there are plenty of reasons why you may consider buying them.
1. Gives you some of the highest potential returns possible
Out of all investment types, stocks are considered to be one of the most lucrative choices. The average annual gains over the course of years is close to 10%.
2. You can support the companies you like
Overall, the major benefits of purchasing stocks is the potential to make money and support a company you believe in. It’s a small way to show your support and vote with your dollars.
You can also make sure your money is only going to companies that align with your moral and environmental beliefs – instead of funding a company you're at odds with.
3. Your money stays relatively liquid
If you need some of the money you invested in stocks for an emergency, you can sell your stocks at any time that the market is open and get the money back.
Of course, this brings on the risk that you pull out before a huge gain, or you even lose money on your initial investment – but it's better than not having that money at all.
4. You don't need a lot of money to start out
Some robo advisors and other investment tools require minimum balances of up to $5,000 before your money can start being invested.
But if you're simply buying stocks, you just need to make sure you have enough money to buy a single stock, and you're ready to get started.
3 cons of investing in stocks
As for everything in investing, more returns means more risk.
1. None of your returns are guaranteed
Though stocks have a high return potential, it's only that – potential. Any numbers you see can only guess at the future, not predict it.
No matter what stock you buy, there's no guarantee it'll increase in price tomorrow.
2. You could potentially lose all your investments
If the company you bought stocks in goes bankrupt, you could potentially lose all the money you have invested in them. That's why it's important to diversify your portfolio across many different factors, including companies.
3. Stocks are volatile
It’s human nature to feel uneasy when we see big price drops in stock, especially for lower than what we purchased for. This uneasiness often causes people to sell when the price is low, ignoring the fact they're losing money.
Most of the time, it's best to wait out the drop, especially if it's a market-wide drop like what happened with COVID-19. But this depends on your risk tolerance.
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$25 GeniusCash + Delicious meal choices with fresh ingredients + Front-door delivery.FAQ
How can I buy stocks in Canada?
Buying stocks and investing in Canada is relatively simple, thanks to online brokers. All you have to do is sign up with a broker (like Wealthsimple, for example), fund the account, then buy the stocks you're interested in.
Can I buy stocks in Canada without a broker?
Yes, if you prefer not to use an online broker, you can buy stocks through a financial advisor. These advisors can be found independently or through your bank, so a good first start is to call around.
How to buy foreign stock in Canada?
You can trade with online discount brokers – note that currency exchange and tax implications may apply. You can also gain international exposure by purchasing ETFs. Holding Vanguard’s ETF VXC, for example, offers exposure to foreign markets in one convenient fund.
How to buy U.S. stocks in Canada?
As with all non-Canadian stocks, you can purchase U.S. stocks through ETFs or via the online broker of your choice. Just keep in mind that there may be applicable currency exchange rates and tax implications to consider.
How can a beginner buy stocks in Canada?
Choose a reputable online brokerage like Wealthsimple Self-Directed Investing, Questrade, or Questrade. Start by opening and funding an account, then research companies, place orders, and regularly monitor their investments to adjust your portfolio as needed.
Can I buy $100 in stocks?
Yes, you can use exactly $100 to buy fractional shares of more expensive stocks. You can also choose multiple cheaper stocks (the price will be set by the market). Keep an eye out for fees.
How to buy stocks for beginners?
Begin by choosing a brokerage. You can use an online brokerage like Wealthsimple Self-Directed Investing or your existing bank may offer investment options. Fund the account, research stocks, create an overall investment strategy, and buy the stocks online.
How can I buy Canadian shares?
To buy Canadian shares, begin by logging in and opening your brokerage account. Research Canadian companies and other options on the Canadian stock exchange. Choose your shares, fund your account, and decide which purchase order fits your goals.
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