how to invest in stocks in canada how to invest in stocks in canada

Maple Money Moves: Your Best Guide on How to Invest in Stocks in Canada

The UNCTAD Global Investment Report reveals developing countries’ annual investment deficit by 2023 as they work to achieve the Sustainable Development Goals (SDGs) by 2030.
The gap is now around $4 trillion annually – up from $2.5 trillion in 2015 when the SDGs were adopted.

Investing is an incredible way of multiplying your wealth.  But, it may seem difficult for a beginner. However, it can be a simple task with proper guidance and advice. So don’t stress because you’re in the perfect place if you want to learn how to invest in stocks in Canada.

This beginner-friendly guide will systematically discuss the entire process of investing in stocks. We will discover the basics, such as what stocks mean, how to invest in them quickly, which breaks to choose from, and how to optimize your portfolio.

Let us dive into and conquer the world of the stock market and trading Canadian stocks.

how to invest in stocks in canada
Image by Ahmad Ardity from Pixabay

1. Some Key Terms 

Before understanding the stock market, becoming familiar with the most commonly used terms is essential.

1.1. Stock 

Stock, also known as share or equity, refers to a unit of ownership of a company. Sometimes, the company goes public. When this happens, they give their claims to ordinary people for a price.

By owning these shares, you own a piece of the company. You become a partial owner and get a part of the profit. This part of the profit is known as a dividend.

However, companies can only pay dividends if they have sufficient profit. The prices of such stocks are determined by demand and supply, which is influenced by investors’ perceptions of the company’s future performance and profits.

Investing in stocks is highly risky, especially compared to other options like cash and bonds. However, the potential for returns is also higher, thus making them more attractive options. Investing in stocks can promise high returns because of the increase in stock price over time. However, the prices are determined by various other factors, such as:

  • financial performance of the company
  • economic conditions
  • industrial trends
  • global events

So, when investing, it is advised to do thorough research and understand your risk capacity. One common way to minimize the risk is by diversifying your stock portfolio.

1.1.1. Types of Stocks

Stocks are of two main types:

  • Common Shares 
Common Shares and Preferred Shares Explained!

These are common stocks investors hold, allowing them to become partial company owners. It also gives them the right to vote on subjects related to the company.

As mentioned above, you also get a dividend. However, when a company does not earn sufficient profit, it cannot pay dividends. This happens because companies usually pay preferred stakeholders first.

  • Preferred Shares

These shareholders have more claim on the company’s assets. They receive a fixed dividend every year. In case of bankruptcy, preferred shareholders receive their money before common shareholders.

However, these shareholders usually do not have voting rights.

There are many other classifications of stocks depending on factors such as company ownership (public or private) or company type (blue chip, income growth, or cyclical).

1.2. Stock Price

Stock prices are the prices of the stocks that show up on your demat account.

If the reserve is very volatile, it continuously changes by small amounts. However, the stock price will remain unchanged if the store is less active.

1.3. Bid Price

What is a Bid Price/What is an Ask Price? | FXTM Learn Forex in 60 Seconds

This is the price buyers are willing to sell the share for. It means that when you trade stocks, it is the price you will get.

1.4. Ask Price 

This is the price at which an investor is willing to buy the stock. Simply put, it is the price you must pay to buy a share.

1.5. Dividend 

Buying stocks in a company gives you partial ownership of it. As a reward, when companies make a profit, they can pay the shareholders a part of the profit. This is called a dividend. This is mainly in cash. However, it can sometimes be an additional share in the company’s name.

Getting a dividend is one of the critical objectives for many investors. This incentivizes you to buy more of the company’s shares.

1.6. Portfolio Diversity 

This refers to making investments across various ranges of stocks and companies. The main aim of investment portfolio diversity is to reduce risk by not heavily depending on the performance of any one share or company.

Here are some essential factors to consider for portfolio diversity:

  • Stocks from different industries
  • Different market caps
  • Geographic diversification
  • A mixture of growth and value stock
  • Stocks that pay regular dividends

One thing to remember is that stock diversity only helps reduce risk. It does not ensure any profit.

2. How do you buy stocks in Canada?

The process of buying stocks in Canada is straightforward. Just follow the steps mentioned below.

2.1. Get the Right Brokerage Account 

Before you buy stocks, you must get the proper brokerage account. If you are a self-directed investor, you can open an account online and trade stocks from there. There might be brokerage fees for specific charges. Do your research before you get one and start investing.

Brokerage Account: What It Is And Why You Need to Open One| Financial literacy for Beginner Investor

However, if you want to get more from investing, hiring market experts with experience is recommended. You can buy or sell through them and maximize your investment. This method is more expensive.

To learn how to open a brokerage account, keep reading.

 2.2. Learn about Different Stock Exchanges in Canada

In Canada, different exchanges exist for buying and selling stocks:

You will have to get to know them and learn about them.

2.3. Learn to Read Stock Charts 

It is always good to know how to tackle your investments. To do that, you must understand the stock charts and learn about the stock market. It is also known as the stock table.

Here are some symbols that will help you study the charts:

2.3.1. Ticker Symbol

A symbol is a short form for the company’s name. It is represented in two to five letters. It is how the company is described in the stock market.

2.3.2. 52-Week High/Low

It refers to the highest and lowest values of the share over the past year. These help you analyze the overall stock performance and price range as an investor.

2.3.3. Volume

It shows the number of shares that are traded in that period. Higher volume means more claims are being bought and sold.

2.3.4 Change

It refers to the change in stock price since the closing price on the last day. This change is expressed as a number and percentage.

2.3.5. Bid/Ask and Spread/Size.

The marketplace is determined by supply and demand. The stock prices are decided by how much money buyers want to pay for stock and how much money sellers want to accept.

The difference between them is known as spread. Stocks that have higher trade volume usually have lower spreads and vice versa.

2.4. Research the Stocks You Want 

Once you are done creating your brokerage account, start researching. Understanding the nuances of the stock market and trading in it is essential. Examining the company’s financial conditions you want to invest in is necessary.

To do that, start with reading documents. Such documents include the company’s annual report and other fillings. These will help you understand where the company is headed.

Here are some terms you will need to know when you do your research:

2.4.1. Earnings Per Share (EPS)

Earnings Per Share explained

There is always money left over after the company’s bills are paid. This amount is divided by the total number of shares. That amount is referred to as earnings per share.

If the company’s earnings are good, its EPS will also be high.

However, the number can artificially increase if the company buys the shares.

2.4.2. Price/Earning Ratio(P/E)

It shows how much you are willing to invest for every dollar earned. This mainly helps in comparing different stocks in the market.

It is calculated by dividing the current stock price by the EPS of last year.

2.4.3. Dividend Yield

The Dividend Yield - Basic Overview

Expressed in percentages, it is a ratio. It shows the company’s dividend divided by the current stock price. Higher dividends refer to higher earnings. If the stock price drops, the dividend increases.

Before starting actual trade, you should always do “paper trade.” It would be best if you created a fake portfolio of your researched stocks to do that. After adding, track their progress. This will help you get the hang of the system of the stock market before you put your money in it.

2.5. Choose the Order Type 

There are three types of stock orders.

2.5.1. Market Order

When placing a market order, you accept to pay or receive the stock’s market price when buying or selling. The trading happens very fast because of the flexibility.

You can give or receive less or more than you ordered if the share fluctuates.

2.5.2. Limit Order

Limit order allows you to set the maximum amount you will accept for a share. It also represents the minimum amount of money you are willing to receive when you sell your claim. It is not dependent on the market price. However, most traders prefer to keep it at the market price.

Upon placing a limit order, it stays active until it is filled or canceled. There is no assurance on such charges, and the amount you are willing to pay or receive might not appear in the market for that stock.

Here is an example for clarification.

Let’s assume a share is currently $5.50 in the market. You, however, do not want to pay more than $4.50. you can order the amount you wish and the number of shares you want to buy.

If the share price drops to $4.50 or less, your share will be bought, or the order will be canceled.

2.5.3. Stop Order

It is also known as a stop-loss order. Here, you can set a price, and if, in the market, the price goes below the desired price, then your share will be sold automatically.

It helps investors protect themselves from potential loss or lock in profit.

2.6. Optimize Your Portfolio over Time

Knowing the best stocks out there is impossible when you are just beginning. With changes and time, companies can also change financially. So, it is always recommended to have a diversified portfolio.

Another way to invest is through mutual funds and exchange-traded funds. You can also invest in a tax-free savings account. You will not have to pay tax, even when you withdraw it.

These exchanges are ways to own partial shares that are otherwise very expensive.

For example, if a share is $1000 and you want to invest only part of the amount in just one. You can also buy a mutual fund or ETF that already contains it.

3. How do you open a Demat or Brokerage Account?

The process of opening a trading or online demat account is straightforward. Just follow the steps mentioned below.

3.1. Select Your Online Trading Platform

With the rise in competition, many companies are using services with which you can invest in the stock market.

3.1.1. Questrade

Questrade happens to be among the best online brokers in Canada. They have been offering services there since 1999. They provide low-cost trading in all investment products. However, they require a minimum investment of $1000 and charge 1 cent for every stock.

This platform can benefit both seasoned traders and newbies.

3.1.2. Wealthsimple

Wealthsimple is a commission-free broker in Canada, which may benefit beginners due to the lack of a required minimum investment.

However, a currency exchange fee is applied to USD trades until the account is upgraded to Plus, and even then, the fee applies when funding the account and converting between CAD and USD.

3.1.3. Qtrade

Qtrade is the best brokerage for customer service. This platform trades with stocks, ETFs, mutual funds, and other investments.

They have an admission fee of $25 / quarter waived if you hold $25,000, make a minimum number of commissionable trades, and establish a recurring electronic funds contribution of $100 a month or more.

One of their disadvantages is their high trading commissions.

3.1.4. Bank- Offered Stock Platforms in Canada 

Some of the biggest banks in Canada also offer a trading platform.

  • CIBC Investor’s edge
  • TD Direct investing
  • RBC Direct InvestinInvestor linetorline
  • Scotia iTrade

3.1.5. Robo-advisors

If buying and selling stocks sounds complicated, you can always choose a robo-advisor. They are algorithms that invest in different types of stocks and bonds. It depends on your risk tolerance, financial situation, and timelines.

This way also saves your time. You will not have to do any research on the market.

3.2. Sign Up for a Demat Account

All banks follow the procedure of KYC. KYC stands for Knowing Your Client. In this process, they verify your identity and other credentials. When you apply for an account, you will have to take part in it.

The steps below outline the general method of this procedure.

  • Most companies allow you to complete the entire process online. However, some also require an inspection visit to the brokerage for the final verification process.
  • To create your profile, you must create a username and password. These are very important, and they are your login initials.
  • Some companies also ask you to confirm the devices with account access.
  • Then, you will have to select an account type. There are two types of accounts – TFSAs and RRSPs. Trusts and business accounts are also available for use.
  • Then, you must enter your personal information, such as name, email address, and address, along with your mobile number and social insurance number (SIN).
  • You must also submit some basic financial information and bank account details. The bank account refers to the bank from which you will transfer and receive the money.
  • You may have to submit a copy of a valid document such as a driver’s license or passport.
  • You are done once you have completed all the details and submitted the application.
  • You will have to wait for 1-2 days for approval.

3.3. Select the Funding Method

Most brokers have a minimum deposit amount. You will be able to trade once you cross that amount. One of the most accessible versions is to link your bank account with the demat account through Electronic funds transfer.

It can take up to 1-3 business days to complete.

However, some brokers have a feature called instant deposit. This feature allows you to trade before the completion of the system setup. Some other methods are wire transfer, cheque, or account transfer.

However, most platforms do not accept credit cards.

Once done, you can start buying stocks. Do your research wisely, though, to ensure the best results.

4. Benefits of Buying Stocks in Canada

When investing, you can choose between individual shares or mutual funds. Here are some advantages of buying stocks:

  1. If the company you invested in does well, the price will increase, resulting in capital gains when you sell it.
  2. If you buy a share that pays dividends quarterly or annually, you get a source of income.
  3. The stocks are usually very liquid. This means they can be converted to and from money quickly, so whenever you need money (provided it’s between the market hours), you can sell your share and get the money.
  4. Stocks also offer tax benefits. Only 50% of the total capital gains are taxable.

5. In The End

In conclusion, investing is a great option to multiply your earnings over time without much physical effort. By understanding the basics of the market and the knowledge gathered, you can do well and even make it your full-time work.

According to a report, most Canadians invest their money in the stock market. Approximately 54.6 percent of Canadians prefer to put their money in stocks, followed by real estate (34.7 percent) and life insurance (11.6 percent).

However, it is best to start with less and expect the worst. You can learn more and can increase your investments over time. Always give time for them to grow, and don’t rush the process. Stay updated with the latest market trends and review your investment strategies for the best results.

With proper dedication and a long-term outlook, investing in Canadian stocks can help you achieve financial independence.

6. FAQs

Q.1 Can I buy stocks without a broker?

It is legally possible. Some establishments will allow you to buy stocks without a broker. This is called a direct stock purchase plan (DSPP). This method allows small investors to buy shares without the brokerage process and fees.

Using the company’s dividend reinvestment program, you can also buy shares. This also saves you trading fees.

Q.2 How much should you invest in stocks in Canada?

There is no hard and fast rule. You can begin your investing journey with as much as you want in shares. However, some brokers have a minimum amount you must follow.

Q.3 What is the minimum age at which you can start investing?

When investing in stocks in Canada, the minimum age requirement is 18 to 19 years.

Q.4 Is it safe to buy stocks online in Canada?

If you are buying from a proper platform, buying is always safe. Most online brokerages use safety measures like 24/7 infrastructure monitoring and two-factor authentication. So, it is relatively secure.

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