In the past few years, there has been a surge in the number of investors looking for ways to trade stocks without using a broker’s services. Many investors have been victims of fraudulent brokers.
Now more than ever, many people are choosing the DIY route to avoid brokerages’ high fees. Forums like Reddit have become massive resource centres for DIY trading.
When you use a broker to buy and manage your stocks, you typically leave the investment decisions at the broker’s hands. Often, there’s a conflict of interest between both parties.
Many investors have a low-risk tolerance, such that when the market moves in the opposite direction of the brokers’ trade on their behalf, they lose their calm and confidence in the capital market. This is not common when you handpick your investment portfolios.
The good news is that you can now buy stocks and other securities without going through a broker. This saves you money on commissions and having complete control of your investments. You can now buy and sell stocks from the comfort of your home, regardless of your experience and financial strength.
What is a stock?
A stock is an investment that represents a fraction of ownership of a company’s shares. Investors buy stocks of companies or corporations that have the potentials to rise in value. The company’s stock, known as shares, makes an investor a part-owner of that company.
Traditionally, investors buy stocks through brokerages, which trade the stocks on their behalf on regulated exchanges. These brokers often charge fees for their services, and regardless of whatever happens in the market, you and your investments are at the mercy of the broker.
Over the years, however, stock investing has taken a new dimension, such that investors can now execute their trades without the input of a broker.
Buying Stocks Without a Broker in Canada
If you’ve ever invested with a “bad broker,” you’d have discovered that their goals are always in contrast to yours as an investor.
For many investors, buying stocks without a broker’s input has proven to be a smart decision. Here are some smart ways to buy stocks in Canada and save on broker fees.
Direct Stock Purchase Plan (DSPP)
A direct stock purchase plan is one of the easiest methods for buying stocks without a broker’s service. With this method, companies and businesses allow small investors to buy a company’s ownership directly from the company using an administrator. The issuing company often uses a transfer agent or plan administrator to transfer the stock (ownership) to the investors.
With a DSPP, you’ll transfer money from your chequing or savings account, choose a stock from the companies using the plan administrator’s services, and invest the minimum transaction amount. The company determines the minimum investment amount for the initial purchase and subsequent stock purchases. The mandatory minimum investment prices are often lower than the stock market price.
After that, the transfer agent or plan administrator uses the participants’ funds to purchase the company’s shares at recurring intervals and cost-effective rates. As an investor, you’ll receive periodic financial statements of your DSPP purchase, including the number of your shares, dividends, and stock trades.
Dividend Reinvestment Plans (DRIP)
A Dividend Reinvestment Plan (DRIP) is suitable for those who hold have shares or cash dividends in a company. In this plan, the company uses your dividends to reinvest or buy more shares for you.
Therefore, whenever the company pays dividends to shareholders, the company will reinvest the dividend value for you via more shares rather than paying dividends. As a result, you would get a discount on the share’s price.
Direct Reinvestment Plan usually requires registration with the company as a participant, such that you’ll be privileged to directly invest in the company, regardless of whether your stock is listed or not.
The DRIP may come as a commission-free service or at a low commission rate, with a minimum reinvestment requirement.
Discount Brokerages and Online Trading Platforms
For investors who like to handpick their investment portfolios and active traders, a discount or self-directed brokerage might be a suitable option. With low commission, zero account balance, and sometimes commission-free trades, investors can pick their portfolios and enjoy the convenience and flexibility of trading stocks.
Do-it-yourself brokerages offer online trading platforms, educational resources, and analytical tools to aid investors’ trading activities. You can find several virtual brokerage platforms in Canada, including Questrade, Interactive Brokers, Virtual Brokers, Wealthsimple Trade, and more.
Buying and selling stocks directly from issuing companies or through online trading platforms is a great way to save money on commissions and broker fees. The Direct Stock Plans and Dividend Reinvestment Plan also enhance better communication between investors and companies.
However, before you scrap your broker or buy stocks without a brokerage service, you should carefully consider your options and all available alternatives to ascertain the one that suits your investment goals.
Buying your stocks without a broker can prove to be a successful and smart strategy if you carefully choose the best option that suits your financial goals and understand how stock trading works.