How do you buy stocks in Canada?

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How to buy stocks in Canada as a new investor?

Rounding it up

  • New investors often shy away from investing in stocks because of lack of information.

  • You can invest in stocks in Canada through three different accounts: Tax-Free Savings Accounts, Registered Retirement Savings Plans, and Registered Education Savings Plans.

  • Ideally, you should review both fundamental and technical parameters before investing in a stock.

  • You can invest in stocks in Canada through either a big bank trading platform or an online brokerage.

9 min read

Hajra Omar
#investing#investment#stocks#new to investing

Investing in stocks in Canada has become relatively easier over the last few years. Contrary to popular belief, you don’t need to have a significant amount of money to start investing in stocks. In fact, you can open an account with an online brokerage and start investing in stocks from as little as $100. So, let’s take a look at the steps you need to take to buy stocks in Canada.

What is a stock?

A stock, also known as equity or share, is an instrument that gives the holder ownership in a corporation. The unit of stock is called a share. There are two ways in which you can earn an income by investing in stocks. Firstly, you buy the share at a lower price and sell at a higher price. This difference in price is called a capital gain. Secondly, listed companies periodically give dividends to shareholders. Depending on the company, this may be quarterly or annually.

Open an online brokerage account

Shareholders who buy stocks directly via a broker are termed self-directed investors. Self-directed investors must do their own research before deciding which stocks to invest in. In this case, you, as an investor, are accountable for ensuring that you have a diversified portfolio. A diversified portfolio refers to investing in stocks in companies in different industries and geographical locations. It is recommended to protect your investment from (potential) losses and provides a natural offset in case some stocks don’t perform well. It is very easy to open an online brokerage account and begin trading stocks online. The only thing you should do is to find a self-directed account that is trustworthy, and you are ready to get started.

Choose an investment account

As a resident in Canada, you can choose to make investments either through a registered account or a non-registered account. Here are some of the most popular registered accounts:

1. Tax-Free Savings Account (TFSA)

Investing in stocks through a TFSA is an attractive option since it is not taxed. This account allows you to invest and save money for future goals such as retirement. However, keep in mind that the Canadian government has a contribution limit for Canadians over 18 years of age. In 2021, the TFSA annual contribution limit set by the government is $6,000.

2. Registered Retirement Savings Plan (RRSP)

An RRSP is another great alternative to delay paying tax on your earnings unless you withdraw them early. As evident from the name, the primary purpose of this account is to save money for your retirement. You can pay up to 18 percent of your income from the previous year into the account. As with the TFSA, the government also sets an annual limit on the RRSP. For 2021, this limit is $27,830.

3. Registered Education Savings Plan (RESP)

The RESP account is mainly meant for saving for your child’s post-secondary education. If you choose to invest in an RESP, the government offers up to $7200 in open scholarship money for each child having an RESP. Nonetheless, you also have the option of investing through non-registered accounts.

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Don’t forget to do your research

Once you have decided which account you will use to invest in stocks, the next step is researching the relevant companies, especially if you are a self-directed investor. It is essential to research before making any investment. Always study both the fundamental and the technical aspects of a company before investing. If you are not sure about which stocks to invest in, it is always a good idea to seek advice from a professional or even an experienced investor.

The fundamental analysis relies on existing company financials to ascertain its financial health, potential for growth, and intrinsic value. Moreover, you should also analyze the company’s recent financial statements (including the income statement, cash flow statement, and balance sheet) to review its performance on essential factors such as:

  • Dividend Payout ratio

  • Earnings per Share (EPS)

  • Return on Equity (ROE)

  • Price to Earnings Growth (PEG) ratio

  • Price to Earning (P/E) ratio

Other factors that you should also analyze include company management, branding, competitive ranking in the market, and the number of patents it holds, among others. On the other hand, the technical analysis includes using past performance data to gauge a stock’s future performance. Dealers frequently use these and other parameters to make buy and sell decisions. Popular parameters of technical analysis include:

  • Support and resistance levels

  • Trend channels

  • Relative strength index

  • Moving averages

Most brokerage platforms will provide access to charting tools or the stock screener. Once you have undertaken sufficient research, it is time to start investing. However, the process is far from over. To have a successful investment, it is imperative to keep a close watch on your stocks and how they are performing. It can very easily become overwhelming for new investors. If you are a new investor, it is always recommended to keep things simple! Only focus on fundamental analysis and make your decision based on it. As you gain experience and learn which companies to invest in, you can also start considering the technical analysis in making investment decisions. Lastly, don’t feel constrained by borders; Canadian investors can feel free to invest in US stocks and bonds as well!

How to buy stocks online in Canada

Along with the option to invest through discount brokers, you can also invest through a full-service brokerage firm or buy shares directly from a corporation through a direct stock purchase plan or dividend reinvestment plan.

Buy stocks online for free

You can also buy stocks in Canada online through a number of online brokerages. Some factors to consider when choosing an online brokerage include the cost per trade, minimum initial investment requirement, types of accounts offered, whether their platform is user-friendly, availability of investment advice or research, and the different investment options available. Wealthsimple is an example of an online brokerage.

Big bank stock trading platforms in Canada

Some of the biggest banks in Canada also offer stock trading platforms for self-directed investors. Although their fee structure is much higher, you may qualify for a discount if you are an active trader. Also, be cognizant of the minimum balance you need to keep in your account to avoid paying inactivity charges.

1.      Canadian Imperial Bank of Commerce (CIBC) Investor’s Edge

CIBC offers its own brokerage platform called CIBC Investor’s Edge to its customers. You can utilize this platform for investing in stocks, mutual funds, and exchange-traded funds (ETFs), etc. Keep in mind that CIBC will charge you approximately $6.95 per transaction. Students qualify for a discount on commission paid and will pay $5.95 per transaction. Active traders, or those with 150+ deals per month, also pay $4.95 per transaction.

2.      TD Direct Investing

TD Direct Investing is the first stock trading platform launched in Canada. It is the brokerage platform of TD Canada. As with CIBC’s platform, you can use it to invest in stocks, mutual funds, ETFs, and bonds. It offers TFSA, RESP, margin, and RRSP accounts. Although you do not require any investment to open an account, you will be charged a commission of $9.99 per transaction. TD offers a discount for active traders as well; they must pay a commission of $7 per transaction. Most new investors don’t prefer TD’s platform because of its higher transaction costs.

3.      Royal Bank of Canada (RBC) Direct Investing

RBC Direct Investing is a brokerage platform owned by the Royal Bank of Canada. You can use this platform to invest in stocks, mutual funds, bonds, and ETFs. The most important benefit of RBC’s platform is that it also offers customers a demo account for practice. It offers RRSP, RESP, personal, and business non-registered accounts. The trading fee for RBC’s platform is also $9.95 per trade. If your investment balance is less than $15,000 in a quarter, you will also be charged a maintenance fee of $25.

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How to invest in stocks using a Robo-advisor

Not everyone has the time to spend researching companies before investing in stocks. If that is the case with you, you can choose to invest in a carefully chosen basket of stocks picked by professional traders. An Index ETF usually includes many stocks and is diversified across both industries and geographical locations. This extent of diversification is very hard to achieve if you are a self-directed investor.

You can purchase ETFs from your brokerage account. Along with the time spent researching companies before investing in stocks, you will also need to spend time actively managing your portfolio. Most working professionals don’t have that much time to spare. In such cases, you should buy ETFs from an inexpensive wealth manager, also known as the Robo-advisor.

The Robo-advisor is an excellent option for beginners as it makes the investment process easy for you by undertaking all the required research on your behalf. A Robo-advisor can help you in several ways, such as:

  • Helping you understand your risk tolerance, pinpointing your investment objectives, and identifying whether you want to invest short-term or long-term

  • Recommending an investment portfolio that meets your needs

  • Rebalancing your portfolio automatically when needed

  • Saving time for you by contributing small amounts regularly

  • Offering financial advice

However, keep in mind that there is no such thing as a free lunch. To utilize the services of a Robo-advisor, you will need to pay an annual management fee. Now the question arises, which Robo-advisor should you choose? The Robo-advisor from Wealthsimple, for example, is a low-fee option but the best option will depend on your unique preferences.

Finally, a word of caution, investments in the stock market can be volatile. Make sure to undertake due diligence to ensure that you have taken calculated risks.

Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our Subscription Plans page for our most up to date account information!

Hajra Omar

Hajra is a full-time freelancer who writes about finance topics with the hope of making them accessible and easy to understand for her audience.

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