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Published October 19, 2022
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How to Buy Stocks in Canada

Learning how to buy stocks in Canada can seem intimidating, but this guide will help you learn how to research stocks, choose a broker and optimize your portfolio.

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With investing apps and self-directed online brokerage accounts, buying stocks is now easier than ever. But before you get started, it’s important to learn key terms that will help you research your potential investments. 

What is a stock? 

A stock represents partial ownership of a company. This means you are financially tied to the company’s successes and failures; you take part in its gains and you also lose when the company suffers. 

How to buy stocks in Canada

1. Establish the right accounts

To start investing in stocks, you’ll need a brokerage account. If you’re a self-directed investor, you can open a brokerage account online and buy and sell stocks yourself. Although there may be fees to hold the account and/or perform trades, this typically is the cheapest option. 

If you prefer to leverage the expertise of somebody with stock market investing experience, you can buy and sell stocks through a stockbroker or financial advisor, though this option comes with higher fees. 

2. Get familiar with Canada’s stock exchanges

Exchanges on which stock can be bought and sold in Canada include:

3. Prepare to read stock charts

Whether you use an advisor or not, it’s good to know how to track your investments. To do this, you need to understand stock charts (also known as stock tables) and the key terms that will allow you to interpret them accurately.

Ticker symbol: An abbreviation of the company name, the ticker or stock symbol is usually expressed in two to five letters. This is how a public company is represented on stock exchanges. 

52-Week high/low: This term refers to the highest and lowest values of the stock in the last year. These numbers — and the spread between them — can be a measure of the stock’s overall volatility. 

Volume: The number of shares traded in a period of time is referred to as volume. A higher volume means more people are buying and selling that stock. 

Change: This term refers to how the stock’s value has fluctuated since the last day’s closing price. Change can be expressed in the stock price as a number and as a percentage. 

Bid/ask and spread/size: As with any marketplace driven by supply and demand, stock prices are determined by how much money buyers are willing to pay for a stock (bid) and how much money sellers are willing to accept (ask). 

The difference between bid and ask numbers is referred to as the spread. Stocks with higher trading volumes tend to have a lower spread, which means they are more liquid (or easier to buy and sell). 

Size is the number of shares available at each of the bid and ask prices, and it is usually expressed in multiples of 100. So if a bid/size is $3/8, it means there is demand for 800 shares at a maximum price of $3. If the ask/size is $4/6, then there are 600 shares available for $4. 

4. Research the stocks you might want to buy

Once you’ve set your brokerage account, and familiarized yourself with stock trading terminology, it’s important to research the financials of the stocks in which you want to invest. 

You might start by reading the company’s annual report and other filings so you can understand what’s going on with the business and where it’s headed. 

Here are some key terms to aid your research:

Earnings per share (EPS): Earnings are the amount left over after a company’s bills are paid. This number is divided by the total number of shares to produce EPS. The higher the EPS, the better a company’s earnings. However, if a company buys its own stock and reduces the number of shares available, it can artificially bump this number. 

Price/earnings ratio (P/E): This is effectively how many dollars investors are willing to pay for every dollar of earnings, and it’s helpful in comparing the relative value of different stocks. It is the current stock price divided by the EPS over the last year. For context, the P/E ratio of the Toronto Stock Exchange (TSX) was 14.5 as of June 30, 2022. 

Dividend yield: This ratio is expressed as a percentage, which reflects the amount of annual dividends a company pays out divided by the current stock price. A higher dividend yield is usually indicative of higher earnings, but if the current stock price goes down, the dividend yield goes up. 

Before you dive in, you may also want to do some “paper trading” by creating a fictitious portfolio consisting of different stocks and tracking its progress on paper (or on a spreadsheet or online simulator) so you can get the hang of how the stock market works before you start putting money on the line. 

5. Choose your stock order type

There are three main types of stock orders: market, limit and stop. 

Market order

Placing a market order means you’re willing to pay or accept whatever the market price is for the stocks you want to buy or sell at the time you place the order. Because of this flexibility, your trade will happen quickly. You may notice that your order goes through in batches at different prices, and in the case of volatile stocks, you may end up paying or receiving more or less than the market price listed at the moment you place the order. 

Example: You place a market order to buy 500 shares of a security. You notice that 400 shares are listed with an ask of $3 (which you get) and the next best-priced ask is $4.50, which is the rate you pay for the remaining 100 shares. 

Stocks with a large spread and low volume may result in the biggest difference between the market price when you place the order and the actual price you pay or receive for the shares. 

Also, if you place an order when the market is closed, that order will be filled the next day when the market opens, which could be at a different price. 

Limit order

A limit order allows you to set the maximum price you’re willing to pay to buy  a stock and the minimum price you’re willing to accept to sell it. When you place the limit order, it sits on the exchange until it is filled, expired or cancelled. The limit means your order may take longer to fill (compared to a market order) or may not happen at all if the security doesn’t trade at your limit order price. 

Example: You want to buy a stock currently trading at $5, but you don’t want to pay more than $4.50 per share. You place a limit order for 300 shares at $4.50. If the price of the stock goes down, your order will be fully or partially filled depending on the number of shares available with an ask of $4.50 or less. 

Stop order or limit order

A stop order allows you to set the exact price at which you’re willing to buy or sell stock; stop orders aren’t visible to the market.

Canadian exchanges allow only limit orders; U.S. exchanges accept both limit and stop orders. 

Example: You own 100 shares of a stock currently valued at $5. You think it might go down in value, and you want to limit your losses. If you create a stop order for 100 shares at $4.50 per share and it hits $4.50, a market order is placed and the 100 shares will sell for whatever the bid is — which could be lower (or higher) than $4.50, depending on the volume of trades and volatility of the stock. 

You can instead place a stop-limit order with the stop at $4.50 and the limit at $3. When the price goes down to $4.50, a limit order is placed to sell your 100 shares, but not at a price any lower than $3.

6. Optimize your portfolio over time

It is impossible to pick winners and time the market correctly 100% of the time, even if you’re an expert investor and businessman. If you believe the company you’re investing in is ultimately solid, you’ll need to be tolerant of short-term fluctuations. The best way to optimize your portfolio is by diversifying your investments. Selecting stocks in a variety of industries and sectors will even out your portfolio’s performance over time.

Another way to diversify your investments and gain access to the stock market without having to research every company ad nauseam is to invest in exchange-traded funds or in mutual funds. These are like mini-portfolios of stocks and other investments. 

ETFs and mutual funds are also a way to own fractional shares of stocks that would otherwise be prohibitively expensive. If a stock’s value is $1,000 per share and you don’t want to spend that much on one stock, you can buy units of an ETF with that stock in its portfolio.

Frequently asked questions about buying stock in Canada

Can I buy stock after hours?

North American markets are open from 9:30 a.m. to 4 p.m. Eastern time, Monday to Friday, except on holidays. However, hours may be extended via premarket and after-hours trading, which is done not on stock exchanges but on an ECN (electronic communications network), which matches potential buyers and sellers. 

After-hours trading occurs from 4 p.m. to as late as 8 p.m. Eastern time, while  premarket trading usually happens from 8 to 9:30 a.m. Eastern time. 

You can only place limit orders on an ECN, and they’re only good for that session. If your order hasn’t been filled when the market reopens, you’ll need to place a new trade.

Can I buy stocks without a stock broker?

Yes. Some companies allow you to buy their stock directly through a direct stock purchase plan (DSPP). But given how easy and cost-effective it can be to open a brokerage account, most people tend to do so.

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