Buying stocks in Canada involves purchasing partial ownership in a public company, making you a shareholder who participates in its gains and losses. The process is conducted through a regulated brokerage account, which can be opened online in minutes once you are at least 18 years old. Canadians can hold stocks in various registered accounts like TFSAs and RRSPs, which offer significant tax advantages. Understanding the steps, account types, and common order types is essential for anyone looking to participate in the equity markets.
Understanding Stocks and Shareholder Ownership
Buying a stock means purchasing a slice of ownership in a public corporation, which makes you a shareholder. As a part-owner, you participate in the company's future gains and losses, which can manifest as capital gains if the stock price increases or as dividend income if the company distributes a portion of its profits. Shareholders may also be entitled to vote on certain key company decisions. Stocks are considered higher-risk investments compared to fixed-income products like GICs, and investors historically expect a higher potential rate of return in exchange for accepting that volatility. The total value of stock held by the public is known as the company's market capitalization. It is crucial to remember that stock prices fluctuate and past performance is no guarantee of future results.
Eligibility and Prerequisites for Canadian Investors
In Canada, you must be a minimum of 18 years old to buy stocks, as this is the age required to enter your own stock trading contract. Before opening an account, you should define your investment goals, time horizon, and risk tolerance. Your time horizon refers to how long you plan to invest, which influences your asset allocation. Younger investors with longer horizons may be more comfortable with stock market volatility. Your risk tolerance is your willingness to take on riskier investments for the potential of higher returns. You also need to determine your budget, deciding whether you will invest a lump sum or contribute money regularly. Another key decision is whether you want a self-directed account, where you control all investment decisions, or if you prefer to use a financial advisor or automated service.
Choosing and Opening a Brokerage Account
To buy stocks, you must first open an account with an investment firm, commonly an online discount brokerage. The process involves completing an application, fulfilling identification requirements, agreeing to terms and conditions, and waiting for approval. When choosing a brokerage, you should compare features such as fees, available account types, research tools, and the user experience of their platform or mobile app. Many brokerages charge a flat per-trade commission between $5 and $10, though some offer zero-commission trades for stocks and ETFs listed on Canadian and U.S. exchanges. It is advisable to ensure the brokerage is regulated for investor protection. Some platforms, like RBC Direct Investing, offer a risk-free practice account to experiment with placing trades before using real money. Brokerages like Questrade and Wealthsimple Trade are noted as choices for buy-and-hold ETF investors due to commission-free ETF purchases. Scotia iTRADE provides clients with access to real-time quotes and hundreds of detailed analyst research reports covering stocks in all major sectors.
Selecting the Right Investment Account Type
The type of account you use to hold your stocks has significant implications for taxes and your financial goals. In Canada, the most common account types are registered plans and non-registered cash accounts. A Tax-Free Savings Account (TFSA) allows your investment gains from price growth and dividends to accumulate and be withdrawn tax-free. A Registered Retirement Savings Plan (RRSP) is designed for retirement savings, offering a tax deduction when you contribute, but you pay tax when you withdraw in retirement. The First Home Savings Account (FHSA) allows you to save up to $40,000 tax-free for a down payment. A non-registered cash account is used once registered accounts are maxed, but it requires you to pay capital gains tax on profits. You can hold qualified stocks in a TFSA, FHSA, RRSP, RRIF, or RESP. A margin account can help boost your buying power by leveraging the value in your portfolio, allowing you to borrow against securities you own for additional investments, but it involves increased risk and is not suitable for everyone. A standard cash account provides flexibility to easily access available cash and trade a variety of securities on North American markets.
Funding Your Account and Understanding Market Structure
After your account is approved, you need to deposit funds by transferring money from your bank account to your brokerage account. Stocks are traded on securities markets, which in North America are separated into primary and secondary markets. The primary market is where a company sells its shares to the public for the first time in an Initial Public Offering (IPO). The secondary market, which includes major stock exchanges like the TSX and the Over-The-Counter (OTC) market, is where investors trade shares among themselves. Brokerage firms act as agents, enabling you to buy stocks without being on the trading floor. Major North American markets are generally open from 9:30 am to 4:00 pm Eastern Time, Monday through Friday, with some brokerages offering pre-market and after-hours trading at no extra cost. RBC Direct Investing, for example, offers online and mobile pre-market and after-hours trading at no extra cost alongside free real-time streaming quotes.
Researching Stocks and Obtaining a Quote
Before placing a trade, you should research the companies and sectors you want to invest in. Brokerages provide tools such as real-time streaming quotes, analyst research reports, and fundamental and technical analysis. When you have short-listed investment ideas, you need to obtain a quote for the stock using its ticker symbol. A standard stock quote will show key information including the last traded price (market price), the change from the previous day's close, the bid (the highest price a buyer is willing to pay), and the ask (the lowest price a seller is willing to accept). Understanding these terms is essential for placing an informed trade. It is also important to consider asset allocation, which involves holding a mix of stocks, bonds, and other assets to manage risk based on your time horizon and risk tolerance. Scotia iTRADE offers detailed fundamental and technical analysis and the option to search by symbol or company name. RBC Direct Investing provides tools and research from Morningstar and LSEG to help make informed decisions.
Placing a Trade: Order Types and Execution
Placing a trade involves several specific steps on your brokerage's online platform or mobile app. First, you search for the stock by its name or ticker symbol and select the 'Buy' action. Next, you enter the quantity of shares you wish to purchase. The most critical step is choosing your order type, which dictates how your trade will be executed. The two most common order types are market orders and limit orders. A market order instructs the brokerage to buy or sell the stock immediately at the best available current market price. A limit order allows you to set a specific maximum price you are willing to pay to buy or a minimum price you are willing to accept to sell. The trade will only execute if the market reaches your specified price. After reviewing the order details, you confirm and place the trade.
When you are ready to buy a stock, you must choose an order type to specify how your trade will be executed. The two most common order types are the market order and the limit order. A market order instructs your brokerage to buy the stock immediately at the best available current market price. A limit order allows you to set a specific maximum price you are willing to pay for the stock, giving you more control over the purchase price. Selecting your order type is a standard step when placing a trade through an online brokerage platform.
- Market Order: Buy or sell at the best available price immediately.
- Limit Order: Set a maximum price to buy or a minimum price to sell.
- Stop Order (Stop-Loss): Becomes a market order once a specified price is reached, often used to limit losses.
- Stop-Limit Order: Combines stop and limit orders. Becomes a limit order once the stop price is hit.
Once the trade is placed, you can monitor your portfolio through your brokerage account. Some platforms offer features like automatic dividend reinvestment to buy additional shares commission-free, as RBC Direct Investing does. It is important to stick to your predetermined stock trading budget and never invest more than you can afford to lose. Successful investors allot a certain percentage of their investment portfolios to trading stocks and use their brokerage's website or mobile app to place trades during standard market hours.
Tax Considerations and Withholding on Foreign Stocks
Tax treatment depends heavily on the type of account you use. Gains in a TFSA are entirely tax-free, while RRSPs offer tax-deferred growth. In a non-registered account, you must pay capital gains tax on profits. If you hold foreign investments like U.S. stocks in your TFSA or RESP, foreign governments may apply a non-resident withholding tax on dividend income. For example, the United States Internal Revenue Service imposes a 30% withholding tax on dividends paid on U.S. stocks, which can be reduced to 15% by submitting a W-8BEN form to your brokerage. This withholding tax is generally unrecoverable in a TFSA, which can reduce your potential returns. For registered accounts like RRSPs, the U.S. typically does not withhold tax on dividends. You should consult a tax advisor for guidance specific to your situation. It is important to note that withholding taxes are unrecoverable in a TFSA or RESP and may reduce your potential returns from foreign stocks.
Ongoing Portfolio Management and Common Fees
After purchasing stocks, you should monitor and manage your portfolio, reviewing alerts and making adjustments as needed based on your investment strategy. Brokerages may charge various fees beyond trade commissions. It is important to understand the fee structure of your chosen platform. The table below outlines common fees associated with buying stocks in Canada.
| Fee Type | Typical Cost or Description |
|---|---|
| Stock Trade Commission | $5 to $10 flat per transaction |
| ETF Trade Commission | Often $0 at discount brokerages |
| Options Contract Fee | $0.99 per contract for Canadian-listed equity options |
| Account Transfer Fee Reimbursement | Up to $200 covered by some brokerages for transferring $15,000+ |
| Inactivity Fee | May apply if no trades are placed within a specified period |
| Currency Conversion | Applied when buying U.S. stocks with Canadian dollars |
| U.S. Index Options Fee | US$0.99 per-contract fee |
| Canadian Index Options Fee | CA$0.99 per-contract fee |
Many brokerages offer tools for income projection, watchlists, and performance tracking. Some, like Scotia iTRADE, provide detailed analyst research reports and educational resources. Remember that leveraging strategies through margin accounts can increase buying power but also significantly increase risk and is not suitable for all investors. RBC Direct Investing offers features like automatically reinvesting cash dividends to buy additional shares commission-free and projecting the income they will earn over time. Some brokerages, like Questrade, offer commission-free trading for stocks and ETFs listed on U.S. and Canadian exchanges when trades are placed online through their website or mobile apps.
Protections and Additional Brokerage Services
Canadian brokerage firms are regulated, offering investor protections similar to those of major banks. For instance, RBC Direct Investing states that clients are protected and can get reimbursed for unauthorized transactions conducted through their Online Investing platform or the RBC Mobile app. Some brokerages offer incentives for transferring an existing account, such as covering up to $200 in transfer fees charged by your previous brokerage when you transfer $15,000 or more. Royal Circle and Royal Distinction members may be eligible for up to $500 in fee reimbursements. Brokerages also provide extensive educational resources. RBC's Inspired Investor Trade and Investing Academy offer learning materials about trading and investing in stocks, options, and ETFs. Scotia iTRADE offers trading and investing education all in one platform, accessible via the Account Details tab to monitor your portfolio and track performance. These services are designed to support both new investors, with platforms like GoSmart by RBC Direct Investing, and experienced traders seeking advanced tools. The notes also mention that Wealthsimple's education team is dedicated to making finance easy to understand, and automated investment services are a reasonably priced, user-friendly way to invest if you do not want to pick your own stocks.
Frequently asked questions
Are there taxes on U.S. stocks held in a TFSA?
Yes, there can be. While Canada does not tax gains in a TFSA, the United States imposes a non-resident withholding tax on dividends paid by U.S. companies to foreign accounts. The standard rate is 30%, but it can be reduced to 15% if you submit a W-8BEN form to your brokerage. This tax is generally not recoverable in a TFSA.
What is the minimum age to buy stocks in Canada?
You must be at least 18 years old to buy stocks in Canada. This is the legal minimum age required to enter your own stock trading contract with a brokerage firm. The requirement is consistent across provinces for entering into such financial agreements. Once you meet this age requirement, you can proceed to open an investment account with a broker. From there, you can begin the process of funding your account and placing trades to purchase shares of public companies.
Do I need a lot of money to start buying stocks?
No, you do not need a large sum of money to start buying stocks. You can begin with the amount required to purchase a single share of a company, plus any applicable trade commission. Many online discount brokerages have no minimum investment required to open an account, making them accessible for new investors. Some brokerages charge a flat per trade commission, typically between five to ten dollars, though others offer zero commission trades for certain securities like ETFs. This allows you to start investing with a relatively small budget and contribute money regularly.
What is the difference between a TFSA and an RRSP for holding stocks?
A Tax Free Savings Account, or TFSA, allows your investment gains from stocks, including dividends and capital gains, to grow and be withdrawn completely tax free. A Registered Retirement Savings Plan, or RRSP, is designed for retirement savings and provides a tax deduction when you contribute, with investments growing tax deferred inside the account. However, you pay income tax on withdrawals made during your retirement years. The choice between these accounts depends on your current income, future goals, and tax situation, with TFSAs often being a practical starting point for many Canadians due to their flexibility and tax free growth.
What are the main types of orders I can place?
The two most common order types for buying stocks are market orders and limit orders. A market order instructs your brokerage to buy or sell the stock immediately at the best available current market price. A limit order allows you to set a specific maximum price you are willing to pay to buy a stock, or a minimum price you are willing to accept to sell it, providing more control over the execution price. When placing a trade, you will need to select your order type, enter the quantity of shares, and confirm the details before submitting the order to the market.
Can I practice trading stocks without using real money?
Yes, you can practice trading stocks without using real money. Some brokerage firms offer risk free practice or paper trading accounts that use simulated funds. For example, RBC Direct Investing provides a free Practice Account for RBC Royal Bank clients to try out their Online Investing platform and experiment with placing trades. This allows new investors to learn the mechanics of searching for stocks, obtaining quotes, and placing different order types in a simulated environment before committing their own capital to the markets.
Sources and further reading
- How to Buy Stocks: Complete 6-Step Beginner Guide wealthsimple.com
- How to Buy Stocks in Canada | TD Direct Investing td.com
- How to trade stocks online questrade.com
- Stocks rbcdirectinvesting.com
- Buy stocks from equity market, open an account today scotiaitrade.com
This article explains how things work and is not financial, tax or legal advice. Rules, limits and rates change, so check the current figures with the Canada Revenue Agency, your province or your financial institution before you act.