The days that investors, interested in buying or selling stock, only had to deal through a stockbroker to make a trade are gone. The advent of bank-owned brokerage platforms, independent and online discount brokerages has made stock trading easier in recent years.
Today, investors have the opportunity to trade stocks via an online stock trading platform like Questrade or Wealthsimple Trade. These two platforms are common online stock brokerages in Canada.
To discuss online stock trading effectively, we may need to refresh our minds with the knowledge of stocks yet again. Stock or equity is a security that represents the ownership of a fraction of a corporation.
Stocks entitle owners to a portion of the assets and also to profit share, known as a dividend, in proportion to the units of shares they own in the corporation. A unit of a stock is called a share and stocks of public corporations are traded on the stock exchange.
Types of Stock you can buy in Canada
- Common stock
These are ordinary shares; common shareholders are part-owner of the business. These types of shares are usually purchased at a price set by the market. The reward of this type of stock is either through stock appreciation or dividend payments. This gives them the following privileges:
- voting rights on matters relating to the company such as the election of the board of directors.
- claim on the company’s assets and profits (dividends). Though dividend payments are not guaranteed and if the company is experiencing challenges, the bondholders, preferred shareholders, and other creditors get paid first.
- Preferred stock
Preferred shareholders own superior shares with a greater claim to profits/assets of the company. They are paid a fixed dividend amount per share and when the company goes bankrupt, preferred shareholders get paid before “common” shareholders. The stock blends the elements of bonds and common stocks.
Preferred stock has a stated par value, such as CA$100, and the dividend payment is a percentage of this par value. Preferred stock comes with more risk than investing in company bonds or common shares.
However, such shareholders also get no voting rights but do get top priority on claims to a company’s assets and income. Types of preferred shares include perpetual; convertible; rate resets; and floating rate.
- Exchange-Traded Funds (ETFs)
ETF is an investment fund, collection of securities that are sold on an exchange and combine the features and potential benefits of stocks, mutual funds, and bonds.
ETFs are passive investment products that hold a basket of stocks that mirrors an index, like the S&P/TSX Composite. Investors can buy them on margin, using leverage, or buy options on them.
ETFs are usually cheaper than mutual funds and there are ETF Index-tracking platforms in Canada that provide instant diversification and ease of tracking ETFs.
- Mutual Funds
Mutual Funds are investment pools of monies from a large group of investors. They can invest in a broad stock market index like the S&P/TSX Composite, or based on a specific mandate, like “oil and gas companies and major blue-chip companies in Canada.” It has the potential for above-average returns compared to the general stock market benchmark.
Most mutual funds are actively managed by portfolio managers who aim to provide an above-average return though it is billed by portfolio managers at higher fees than most ETFs.
Mutual fund investors are expected to buy or sell units of the fund directly with the fund company, not the stock market. Unlike stock and ETF prices which change throughout the trading day, a mutual fund’s unit price, called NAV (net asset value) is only calculated once a day after the markets close.
Steps to Online Stock Investment in Canada
Buying stocks with an online brokerage can be as easy as opening a stock trading account, selecting the ticker symbol of preferred stock and the quantity of stock, and ultimately hitting the “Buy” button.
Every big bank in Canada has its discount brokerage arm, and for many do-it-yourself investors, this can be the most convenient way to start investing on their own. But they charge about CA$9.99 every time you buy or sell a stock or ETF. However, some independent online brokerages don’t charge commissions, especially Questrade and Wealthsimple Trade.
Questrade is the low-cost investing king in Canada. DIY investors have been using Questrade for its lowest fees and excellent customer service for several years. With their rock bottom low fees, including free ETF purchases, and super-easy online trading platform, Questrade is consistently our top pick for the best online brokerage in Canada.
Wealthsimple Trade is also a great option, as it doesn’t charge any commissions on buying individual stock or ETFs trades.
- Step 1: Dedicate Funds for Stock Investment
Investors don’t need thousands of dollars to start investing in stocks. Discount brokers, like Questrade, can get investors started with as little as CA$100 and not have to worry about being charged high transaction fees every time you buy a stock.
In the beginning, your savings rate matters much more than the rate of return on your investments. Investors must build the habit of saving to accumulate funds for investment. Contributing small amounts to stock investment regularly is a great way for investors to gradually build a sizable portfolio.
- Step 2: Open an Online Brokerage Account
Discount brokerages provide an excellent online trading platform for Do It Yourself (DIY) investors to buy and sell securities on their own instead of relying on a human broker to execute transactions. The fees for discount brokerages are quite affordable and with a little know-how, DIY investors can take advantage of the following:
- flexibility to choose and manage your investments, including commission-free ETFs
- Low per-transaction trading costs and low management fees
- Access to real-time data, research tools, and analysis
- Investors ability to do stock-picking research and investment decisions
Investors can choose an RRSP, TFSA, or a non-registered account.
An RRSP gives you a tax deduction on contributions, but you’ll pay income taxes on withdrawals. In contrast, you don’t get a tax deduction for TFSA contributions, but you can withdraw funds tax-free.
Both RRSPs and TFSAs offer tax-sheltered growth on investments – meaning there are no taxes on your contributions, dividends, capital gains, or any other interest earned within the account.
An RRSP makes sense for high-income earners, while a TFSA makes sense for lower-income earners. Moreover, when investors exhaust limits on RRSP and TFSA, they can choose to also open a non-registered or taxable account to invest.
Most online brokers support multiple account types such as joint investment accounts, corporate accounts, or Locked-in Retirement Accounts (LIRAs).
- Step 3: Fund the Account
Investors can link their chequing account or savings account to their brokerage account and transfer funds at will. Most brokers will also allow investors to set up automatic deposits from their chequing account so they can fund their brokerage account regularly.
Investors can also transfer their existing investments from an existing bank or investment firm. The funds’ transfer can either be “in-kind”, meaning the investments held at the previous institution would simply transfer over to the investor’s new broker account as is; or transfer funds “in cash”, which means those funds would be sold and then the cash would be transferred to the new account for the investor to continue investing.
- Step 4: Develop Investing Plan and Strategy
Investors need a financial plan and strategy to profit from the opportunities that are presented in the stock market and manage the associated risks. Investors need to decide on a preferred investing approach and the type of investments they are willing to engage. Some of the possible approaches are discussed below:
- Index Investing
The easiest approach is a passive investing approach which is associated with index investing. With an indexing strategy, you simply buy an ETF or index mutual fund that tracks a broad stock market index, like the S&P 500 or TSX Composite Index. You can build a diversified portfolio with just one-to-four ETFs that make up the Canadian, U.S., and international stock markets, plus corporate or government bonds.
2. Dividend Investing
Some investors prefer to build up a portfolio of dividend stocks. These stocks – particularly the ones that increase their dividend pay-outs annually – tend to perform exceptionally well over the long-term, thanks to their tilts towards the value factor and profitability factor. Sticking with blue-chip dividend stocks can help investors weather any market storm, as those steady dividend payments keep coming even when markets are rocky.
3. Growth Investing
Other investors prefer investing in companies with strong prospects for growth. It can be interesting to invest funds in such companies and take the long haul with the companies. Growth stocks tend not to pay dividends – at least until they become more mature but have the potential to earn capital gains.
- Step 5: Engage a Robo Advisor
If an investor, especially a DIY investor, is not willing to pick stocks directly for investment and also wants to avoid high fees charged by a full-service brokerage, the investor can rely on a Robo-advisor.
Robo advisors will automatically create a diversified, balanced portfolio based on your individual preferences, like time horizon and risk tolerance. This service is often at lower fees than a bank or brokerage.
When investors engage Rob advisors, their portfolio is managed automatically using sophisticated software algorithms. The benefits include:
- Investments are selected and managed for the investor
- It develops a fixed portfolio that matches the investor’s risk tolerance
- Low annual management fees (under 1%)
- The investor does not have to re-balance their portfolio
Canada’s Best Online Brokerages
- Questrade
Questrade is a division of Aviso Wealth and offers a full range of tools and resources including watchlists and alerts, investment screening, technical and fundamental research, analysts’ recommendations, and Reuters’ daily newsletter.
Questrade also offers planning tools and calculators to set and track financial goals, including a health check that grades your portfolio’s risk exposure across five financial dimensions. Questrade has been offering brokerage services to Canadians since 1999.
| S.N. | Questrade Offers | |
| 1 | Accounts available | Personal non-registered, TFSA, RRSP, RESP, LIRA, LRSP, RRIF, LIF, cash or margin account, and corporate accounts |
| 2 | Safety | The accounts are protected by the Canadian Investor Protection Fund (CIPF) and private insurance |
| 3 | Minimum Investment | $1,000 |
| 4 | Trading Fees | 1 cent per stock; minimum $4.95 and maximum $9.95 per trade |
| 5 | Additional Fees | Commission fee – a minimum of $1,000 to start investing |
| 6 | Promotion | Get $50 in free trades when you fund your account with $1,000 min. and start trading |
- Wealthsimple Trade
Wealthsimple Trade was launched in 2019 and it is the only independent discount broker that is a commission-free stock trading platform.
The platform has an interface that allows investors to search Canada and U.S. stocks and ETFs by name or symbol, or filter by “most active,” “top gainers” and “top losers.” Currently, Wealthsimple Trade is only available as a mobile app on your smartphone or tablet.
| S.N. | Wealthsimple Trade Offers | |
| 1 | Accounts available | Personal investment account, TFSA, and RRSP |
| 2 | Safety | The account is protected by the Canadian Investor Protection Fund (CIPF) |
| 3 | Minimum Investment | None |
| 4 | Trading Fees | No trading commissions ($0) |
| 5 | Additional Fees | The currency exchange fee applies to USD trades; which is the daily corporate rate + 1.5%. |
| 6 | Promotion | Get a $25 cash bonus when you open an account and deposit and trade at least $100 in stocks |
- BMO Investorline
The Bank of Montreal’s self-directed trading platform has tools and research available for new investors, including bi-weekly educational emails, online demos and tutorials, and webcasts from industry experts.
Investors can also create watch lists and receive regular personalized notifications about your account. Accounts containing $50,000 are eligible for portfolio management services, at a cost.
| S.N. | BMO Investorline Offers | |
| 1 | Accounts available | TFSA, RESP, RRSP, RRIF, LIRA, LRSP, LRIF, LIF, cash, and margin accounts |
| 2 | Safety | The accounts are protected by the Canadian Investor Protection Fund (CIPF) and private insurance |
| 3 | Minimum Investment | $5,000; no minimum balance for TFSAs or RESPs |
| 4 | Trading Fees | $9.95 per trade for stocks and ETFs |
- CIBC Investor’s Edge
| S.N. | CIBC Investor’s Edge Offers | |
| 1 | Accounts available | TFSA, RRSP, RESP, RRIF, LIRA, LRSP, LRIF, PRIF, cash account (individual, joint, or corporate), and margin account |
| 2 | Safety | The accounts are protected by the Canadian Investor Protection Fund (CIPF) and private insurance |
| 3 | Minimum Investment | None |
| 4 | Trading Fees | $6.95 per trade for stocks and ETFs. Student and active trader pricing available |
Other noteworthy online investment platforms are Royal Bank of Canada (RBC) Direct Investing, Scotia Itrade, TD Direct Investing, and others.
Conclusion
Investors interested in DIY investing should consider online trading platforms which have the low-cost foundation for building a self-directed portfolio. Planning and research on stock picking are very essential to ensure a profitable venture.
Financial planning or investment advice can be sourced from a financial advisor or full-service brokerage; Moreover, the best online trading platforms offer sophisticated resources and tools to help investors make informed decisions.
