- What is a Stock?
- Best ways to Buy Stocks in Canada
- How to Buy Stocks for Beginners
- Market Limit Orders & Stop Orders
- Stock Investment Returns and Taxes
- How to Build an Investment Portfolio
- Buying Dividend Stocks In Canada
- Stocks in a TFSA, RRSP, and Non-Registered Account
- Buying Stocks Online in Canada – FAQ
- Investing Online in Canada – Summary
Learning the mechanics of how to buy stocks in Canada can seem intimidating at first. It’s perfectly understandable to be a bit intimidated by the idea of gaining or losing money that you worked hard for – with a few clicks.
But honestly, it’s really just learning which platform makes the stock-buying process easiest for you, and then applying basic grade 5 math. It’s as simple as if a share costs $50, and you buy 20 shares, then you will need $1,000. That’s really it!
The sooner you start learning how to buy stocks in Canada, the sooner you can begin putting your money to work for you. I’ve personally been using one of Canada’s best online brokerages to invest for about a decade-and-half now. Below, you’ll see a quick comparison of the best brokerages that you can use to get started on your DIY investing journey. Then I’ll provide a step-by-step guide on how to buy stocks using our preferred Canadian brokerage.
Best Ways to Buys Stocks in Canada Comparison
$6.95 - $8.75
Free buying AND selling of 100+ ETFs
$4.95 - $9.95
Free BUY of ETFs (full prices for ETF sales)
Free on Wealthsimple Trade
Free to Buy And Sell
What is a Stock?
Before we get into the nitty gritty, let’s get down to basics-what exactly is a stock anyway?
We are constantly inundated with news about the financial markets with words like “stocks”, “shares” and “securities” being tossed out as if we all know exactly what that means. You might have searched for “stock market for dummies” to try and wrap your head around it, but in the end you still felt confused.
Rest assured, you are not alone.
A stock is simply a piece of a company. When you purchase stock in a company, you are purchasing a share, or shares, of the company. Think of it like a pie sliced up into many, many pieces. When you buy a share of the company’s pie, you own a tiny fraction of that company.
When the company’s profits are high, you will be rewarded with things like dividends. A dividend is a small share of the profits delegated to all shareholders. If the company does not offer dividends, don’t worry, you can still benefit when their stock price rises due to profits being reinvested within the company.
The short of it is, when you own stock in a company, you own a slice of the actual company. Not bad, considering you won’t have to lift a finger when it comes to the day to day operations.
Types of Stocks You Can Invest In
In Canada, we have access to stocks on the Toronto Stock Exchange (TSX) and others such as the TSX Venture Exchange (TSXV) and the Canadian Securities Exchange (CSE).
There are also a wide range of types of stocks you can invest in within those stock exchanges.
Stock trading beginners will usually start with common stock and preferred stock holdings.
Common stocks are those you are likely already familiar with. Common shares usually end up producing some of the highest investment returns you can get, as well as the possibility of dividends and voting rights. Common stocks are not without risk of course, as if the company fails, you can lose most, if not all, of your investment.
Preferred stocks are different from common stocks as they usually don’t offer voting rights. On the plus side, they give you automatic dividend payments for the life of your investment. Also, if they happen to go belly up or are involved in a merger, they’ll repay shareholders.
There are a number of other options to choose from within the two main categories of stocks, including:
In general, beginners should take a simple approach and start out small with the basics, including the best ways to buy stocks in Canada, which we’ll outline below.
How to Buy Individual Stocks in Canada for Beginners (Not Dummies!)
So, you now know the stock market basics and what brokerages are out there to help you start trading. The next step, and the most important, is to choose the right brokerage and start investing!
Ready to get started? Follow these 3 simple steps.
Step #1: Open Your Brokerage Account
If you want to cut costs to the bone and decide to go with the discount brokerage route here’s how you would get started with one of our top online brokerage picks, Qtrade.
Head over to Qtrade to create a new account.
After a few easy steps, including setting up funding for your first trades, you will be ready for step 2!
Step #2: Choose the Account Type
We recommend that you first max out your tax advantaged registered accounts first, as long as you qualify. Here are the different types of registered accounts.
In Canada, you can choose from:
- Tax Free Savings Account (TFSA)
- Registered Retirement Savings Plan (RRSP)
- Registered Education Savings Plan (RESP)
We have all the details you need to know to invest using registered accounts. Head over to our TFSA vs RRSP article to start learning more.
If you don’t yet qualify for a registered account, no problem! You can choose to open a non-registered account.
Step #3: Start Investing
Once you’ve logged in and selected the investment account you want to make a trade in, you can go ahead and start preparing to make your first trade!
We recommend doing your due diligence on the companies you are thinking of investing in. There are a lot of choices of stocks to invest in, but not all are worthy of your money. You can check out our top TSX dividend picks as a starting point, as well as by using the educational resources provided by your brokerage.
After selecting the ticker symbol for the stock you want to purchase, complete the necessary information on the next page as shown below.
Almost there! Now, you just need to review the order. If everything looks good, you are ready to submit!
To track orders, simply click on the “Order Status” tab to check on how things are going.
For stock market beginners, the toughest trade to make is the first one, which is totally understandable as it’s all new to you.
After that, you can easily follow the same simple steps to trade again and again! Soon you will be trading with confidence as you watch your investments start to grow.
Should You Invest in Stocks With a Broker or Robo Advisor?
So, we’ve covered stocks and stock brokerages. Great start!
Now you might be asking yourself how you can possibly know what stocks to buy as a novice stock investor.
In the past, you would likely work with a broker from a bank who would try and sell you on investing in a mutual fund. While mutual funds are still available to investors, we would not recommend them. The high cost just doesn’t make sense.
Luckily, there is a relatively new way for you to use a DIY trading platform without you having to choose the stocks yourself.
A Canadian robo advisor service offers you an AI assisted managed ETF portfolio. With the help of automated investing, you will not have to worry about choosing stocks, and still have a chance at making decent returns.
It won’t be as cheap as doing it yourself, but for brand new stock market investors, this could be the perfect solution to help get you started.
How to Start Stock Trading With Market Limit Orders & Stop Orders
Market orders are the most straightforward and simplest types of orders. With a market order, you are choosing to buy a stock or ETF at the best market price available on the market at the time your order is sent to the exchange market and is processed (i.e. executed).
In other words, if you are buying a stock, and the last order price is $28.80, then you will be buying stock in and around that price.
This is the type of order that I personally use and what I recommended in the section above because it is the most simple.
But what if you want absolute certainty in the price you’re paying for a stock?
Limit order gives you the ability to specify a price that you will pay (or receive) when buying or selling a stock or an ETF. Your order will only be executed if the price matches the price you set, within the time limit you choose.
Remember, the order only executes when the stock price you set kicks in. If it never hits that price, or worse, if it goes up, you might lose the opportunity to buy a stock or ETF at the original market price.
Another type of order is called a stop order. A stop order is when you place an order to buy or sell a stock at a specified price. The transaction is triggered when the price you selected becomes the market price. The order will then be processed as a regular market order. The goal is to protect a potential gain or limit a potential loss.
Timing the market is a tough business – one that even the pros can’t get right.
That said, one major benefit of limit and stop orders is that you can set a price you believe to be a fair price for a stock. Assuming you do your homework and understand what a fair value of a company is, say using value investing principles, then using limit orders ensures that you won’t overpay for a stock.
Stock Investment Returns and Taxes
As with any investment, when you make money on your investment, you need to let the tax man know.
The good news is that online brokerages make it super easy to do this. Each year, they’ll send you a tax form called a T5 Statement of Investment Income. It will contain all the information that the CRA needs to know. If you want to know how different types of investment returns are taxed, please read our article on Investing Taxes in Canada.
All you really need to know when you’re first getting started is that investors are generally taxed at a much lower rate than the money you earn while working at a job. It sounds crazy, but it’s true. Many Canadians pay a tax rate of over 50% on some of the money they earn at their job, but pay less than 10% tax on their dividends and capital gains over the long-term.
How to Build an Investment Portfolio for Beginners
Now that you know how to buy stocks in Canada, the question is just which stocks (or other investments you should buy).
Investors often refer to all the investments they own as their “portfolio”.
Most Canadians (and investors around the world for that matter) are best off if they focus on diversifying their portfolio as much as possible.
This means making sure they are invested in companies from around the world and from all the different sectors. But it also means investing in something other than stocks (because stocks can go up and down by 30%+ in a very short time). For most people this means some balance of stocks and bonds in their overall investment portfolio.
Here’s a great video describing the difference between the two:
The quickest way to buy an instantly diversified portfolio is through an all-in-one ETF. This type of investment lets you invest in many companies and many government bonds just by purchasing one single ETF using the steps above.
Here’s our Ultimate Guide to all-in-one ETFs in Canada
If you want to read more about managing risk and how much to put in bonds vs stocks, I recommend checking out our Free eBook.
How to Get Started Buying Dividend Stocks In Canada
Now, many Canadian investors simply love the idea of dividend investing. This has long been the most popular type of DIY investing on Million Dollar Journey.
The basic idea is that stocks make us money in two ways:
1) The price of the stock goes up, and we sell it for more than we bought it for. This is called a capital gain.
2) The company decides to pay shareholders (aka: investors who have purchased their stocks/shares on a stock exchange). This type of payment is called a dividend. Many of Canada’s biggest companies make a lot of money (duh) and each year they decide to pay out a portion of their profits to their shareholders. That payment is called a dividend.
For a lot of people the idea of building an ever-increasing stream of dividends as the fuel for their retirement (at any age) is a perfect fit. The dirty secret when it comes to getting started in investing is that everyone is going to tell you that their style of investing is by far the best one.
The truth is that your overall success in building an investment portfolio is likely going to come down to your personal psychology. Whichever style of investing you feel you “click with” best will likely motivate you to save and invest more money AND stick with the strategy when times are rough. Those two behavioural concepts are vitally important in avoiding the most common investing mistake of selling at the worst times!
Our Ultimate Guide to the Best Dividend Growth Stocks in Canada fully explains this style of investing and is always updated with our top dividend stock picks (as well as fill reasoning for why we like them). If you’re attracted to the simplicity of dividend-focused investing, the good news is that Canada has some great dividend all stars.
How to Buy Stocks in a TFSA, RRSP, and Non-Registered Account
For most Canadians, when they first get started buying stocks online they will only need to open a Tax Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP). Most Canadians are somewhat familiar with these acronyms but don’t really know the details. The other type of account that some might want to open is a Non-Registered Account.
A Non-Registered Account is the plainest of investment boxes. It just holds your investments, but leaves them wide open to taxation. Generally speaking – with a few very specific exceptions – most Canadians would only use this type of account once they have maxed out their TFSA and RRSP. There are also other types of investment accounts for corporations, your children’s education, etc. But for now, let’s just focus on getting started with a TFSA or RRSP.
You can see our full RRSP vs TFSA comparison, but the most important takeaway is to just choose one and GET STARTED! It’s never too late, and we can show you how to create a $1,000,000 portfolio whether you are in your 30s, 40s or even 50s. I’ve watched way too many investors procrastinate on this decision for years, and rob themselves of a lot of investment growth in the process.
Buying Stocks Online in Canada – FAQ
Getting Started on Investing Online in Canada
Learning how to buy stocks in Canada is actually the easy part. DIY online brokerages make it cheap and convenient to buy and sell stocks, ETFs and other investment products.
The more difficult part of getting started with investing is gaining the confidence and conviction to actually hit “buy” on your first stock purchase.
Here’s a little good for thought. Over the last 10 years, the S&P/TSX Composite Total Return Index (generally referred to as “Canada’s stock market”) has gained nearly 8% each year. At that rate of return your investment portfolio would double every nine years.
The best part? The last ten years have actually been historically bad for Canadian stocks. All-time total returns show that the average year our stock market returns about 10%. The USA’s stock market has averaged a 10% return over the last 200+ years!
Most seasoned investors will agree that having stocks as part of your overall investment portfolio is an excellent strategy for building long term wealth. There are other savvy additions that can be made as well, including bonds, GICs, real estate (including REITs) and small businesses.
The main issue I see for first-time investors is that they get stuck in paralysis-by-analysis mode. They go from asking how to buy stocks to then jumping down a rabbit hole of competing theories and ideas. Often, they never actually get started with investing.
You don’t have to invest a lot of money to get started today. Begin gradually, read a little more, learn as you go by talking to other investors, and don’t let perfect be the enemy of great. Best to get started buying stocks today, and improve your knowledge tomorrow
I've Completed My Million Dollar Journey. Let Me Guide You Through Yours!
Sign up below to get a copy of our free eBook: Can I Retire Yet?