How Can Beginners Buy Stocks in Canada? A Step-by-Step Guide to Stock Market Entry

AJAY SAINIJanhavi Ramesh Kowligi
AJAY SAINI Janhavi Ramesh Kowligi Business
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As a Canadian resident, there are several convincing reasons to consider investing in stocks. Investing in stocks helps you save money more efficiently. In addition, it also offers an opportunity to participate in the growth of the Canadian stock market.

By purchasing shares, you become a partial owner and can benefit from potential capital appreciation and dividend payments. Moreover, investing in stocks offers a way to diversify your investment portfolio, which lowers the risk involved and also increases the potential for higher returns.

1. What are Stocks?

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Stocks represent ownership shares in a company, granting investors certain rights and potential returns. When you buy stocks of any organization or company, You become partial owners of that particular company, allowing you to participate in losses and profits.

2. How Do you Buy Stocks in Canada?

Earlier, investing in stocks was a hectic process, but now investing is just a few clicks.

Retiring early is subjective; if you choose to, investing in stocks is the best way to start. Here are a few steps to help you invest in stocks.

2.1 Open Brokerage Account

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One should have a brokerage account to start investing in the stock market. Hiring a stock broker or Financial Advisor will be expensive as they charge high fees. So, going for an Online Brokerage Account is a favorable option.

The best way to invest in Canada is through an online brokerage account, granting you easy access to the market via mobile phones, laptops, or other electronic devices.

In addition, this convenient approach enables investors to stay connected and make transactions anytime, anywhere, enhancing their investment experience. Some reputed platforms with low brokerage fees are mentioned below.

WealthSimple

If you are a beginner in the investing field, then WealthSimple is the best option for you. This platform has no minimum balance criteria, maintenance fees, or trading commissions.

You can also run WealthSimple on both mobile and desktop appliances. There are some disadvantages to using WealthSimple: You can’t buy mutual funds and bonds and have a limited number of stock exchanges.

Questrade

Questrade is the most used platform among Canadian citizens. This platform lets you easily navigate from one stock to another and can be easily accessed on mobile and desktop devices.

Wealthsimple does not charge any account maintenance fees, but users are required to pay a trading fee. The trading fee varies between $4.95 and $9.95, depending on the specific transaction.

2.2 Fund an Investment Account

Once you’ve picked the investing platform, it’s time to choose and put money into an investment account. Now is the opportunity to move ahead and start your investing journey. You can select an investment account aligning with your conditions and goals.

To open an investment account in Canada, a person should be a Canadian citizen and 18 years old or above. The Canadian system categorized investment accounts into two categories: Registered and non-registered.

2.2.1 Registered Investment Accounts

These accounts are regulated under the terms & conditions of the Canadian Government. This account allows Canadian citizens to take benefits of tax deferral or tax savings but has limitations on withdrawal and deposit amounts.

The following list comprises the registered investment accounts with the most subscribers.

2.2.1.1. Tax-Free Saving Account (TFSA)

TFSA is Canadians’ most popular investment account, as there is no need to pay taxes on dividends or profit by selling stocks.

This retirement account is a flexible account, which makes it best for short-term and long-term investment goals. TFSA account comes with a drawback, too, i.e., You can’t hold more than $6,500 in your account.

2.2.1.2. Registered Retirement Saving Plan (RRSP)

This retirement savings account is just like TFSA but less flexible, as it allows one to contribute just 18% of last year’s earned income and has a maximum cap of $29,210. RRSP is ideal for long-term investment goals or those with high incomes.

2.2.1.3. Registered Education Saving Plan (RESP)

RESP especially helps the parent to save for a child’s higher education. The Beneficiary can be exempted from charging tax if they lie under a lower tax bracket.

2.2.2 Non – Registered Investment Accounts

These accounts operate independently without being subject to government rules and regulations. It means You can transact large amounts, too.

Mainly, daily traders use this type of account so that the government can’t penalize them. This investment account is categorized into two Margin and Cash accounts.

2.2.2.1. Cash Accounts

It is an investment account whose income is taxable if you earn profit by selling the stocks or dividends.

2.2.2.2 Margin Accounts

A margin account is a cash account that enables investors to borrow money from brokerage firms and repay it after making a profit.

In addition, this account is mainly used by traders with years of experience.

2.3 Research and Pick Your Stocks

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Choosing potential stock is another tough job to do. There are many stocks available in the Canadian Market. These stocks are mainly categorized into five types:

  • Penny Stocks – A penny stock is commonly used to describe the supply of a small company that typically trades at a price lower than $5 per share.
  • Green Stocks – These Stocks deal with companies that work regarding environmentally friendly products or technology. Canadian Solar and Northland Power are famous and Canada’s most preferable green stock.
  • Growth Stocks – These stocks do better than other companies in their industry by making more money and experiencing higher revenue growth.
  • Blue-Chips Stocks – Companies with an excellent reputation in the market release this type of stock. Mainly, many big government entities and private companies come under this category.
  • Income Stocks – These stocks provide a source of income called dividends, paid out regularly over time.

Now, go through the news and market and select your preferred stock. In Canada, stocks related to banking sectors and technology give good returns.

If you have a trusted financial advisor, that’s good. Still, most of you can’t afford them, so go through company financial records, the company’s earnings, and some metrics like the Price-to-Earning (P/E) Ratio, Debt-to-EBITDA ratio, Price-to-earnings-growth (PEG) ratio, and Price-to-sales (PSR) ratio.

2.4 Choose a Stock Order Type

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You are just a few steps away from claiming your first-ever stock. You have to choose the order type before placing an order. There are two primary order types:

2.4.1 Limit Order

A limit order allows you to set your preferred price where you can buy or sell the stock at that particular point. For example, if you wanted to buy one stock of a company with a market price of $14,567 and you think the stock price is slightly higher, then you can set $14,560 while buying in a limit order.

Hence, your trading platform will automatically purchase the stock when it hits that particular price, which helps you to buy it at a lower price.

2.4.2 Market Order

When you buy stocks using a market order, you are purchasing the stock immediately at the current market price. Daily traders mostly do these practices.

2.5 Purchase Your Stock

Finally, It’s time to purchase the stock. Now, set the amount you want to buy or the number of stocks you wish to buy. Select the order type according to your choice and hit place order. Your brokerage account will take some trading fees as a commission.

Booyah! You just purchased your first-ever stock.

2.6 Monitoring your Stock

Just investing and leaving your portfolio will not give great returns. At least monitor your investment twice a month and stay connected to invested companies.

Financial Market Analysis Graph
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If you don’t pay attention, you may lose quite a lot of money. Be attentive to market news, as investing in stocks when the market is at a lower point is advisable.

2.7 Diversify your Portfolio

Diversifying the holdings is the most critical aspect of improving investment strategy. Still confused? How does a diversified portfolio look? Your portfolio should have holdings of almost all reputed industries.

It shouldn’t be like you are only buying finance companies’ stocks; instead, you should also give a chance to other industries like health, utilities, energy, real estate, NFTs, cryptocurrency like Bitcoin, and other digital assets.

Therefore, diversification allows you to take advantage of different investment opportunities. Investing in various stocks will enable you to participate in emerging trends and capitalize on opportunities for long-term growth.

Conclusion

Investing in Canadian equities can be profitable, but it needs thorough preparation and wise judgment.

You may improve your chances of success as a stock investor by fully grasping the stock market, setting financial objectives, completing in-depth research, and employing a systematic approach.

Remember to be patient, learn new things constantly, and adjust your plans to the always-shifting market conditions.

Last Updated on by Namrata

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