How To Buy Stocks In Canada: Important Things To Know

In this article, we discover how to buy stocks in Canada by understanding where to buy stocks in Canada, how to get started, and how to buy and sell stocks in Canada as well. To offer a well-rounded information source, we also discuss a dividend reinvestment plan which might come in handy!

How To Buy Stocks In Canada: FAQs and Tips! 

Some key terms to know before buying stocks in Canada:

You buy shares from an investment company also called a brokerage house. The representative or investment advisor who sells stocks is usually called a stockbroker. When you buy stocks, you can pay cash, buy on margin, or reinvest your dividends.

Where to buy stocks in Canada:

  • Traditional investment firms –  You pay fees and commissions for the investment advice you receive and for buying and selling stocks.
  • Low Commission Brokerages –  In this case, we often refer to online brokerages. You pay lower commissions because you don’t get advice or help to choose your investments.
  • Managers portfolio –  These advisors, and the companies they work for, focus on clients with higher net worth, usually $ 250,000. They take care of managing your investment portfolio for you.

Any advisor who sells securities or gives investment advice must be registered with the securities regulator of his province, unless he has an exemption. You can check whether your advisor is registered with the Ontario Securities Commission or the Canadian Securities Administrators. 

How to start buying stocks in Canada?

Open an investment account

Before you can buy stocks, you must first open an account with an investment company. There are two main types of accounts:

  • Cash Account –  This is the most common type of account. It allows you to pay for your shares in cash. You will have to complete an account opening form or an investor profile form (the information of which is used to “know your client well”). Your investor profile helps your advisor understand your goals and tolerance for risk.
  • Margin account – If you want to borrow from your investment company to invest, you need to open a margin account. You will need to read and sign a margin account agreement.

You can also buy stocks through a registered plan such as a Registered Retirement Savings Plan (RRSP), Registered Education Savings Plan (RESP),  or Tax-Free Savings Account (TFSA). In these cases, they are always cash accounts. You cannot buy margin investments as part of a registered plan.

How to buy and sell stocks in Canada?

You can give your advisor or investment firm in person, over the phone, or online how to buy or sell stocks. This is called placing an order. You have to pay a commission/brokerage every time you sell or buy stocks.

Four things you should know before placing an order

  1. What you want to buy or sell – You may be able to do multiple trades using the same order. Your advisor or investment firm will confirm your choices before placing your order.
  1. The amount you want to sell or buy – You may need to buy stocks for a minimum amount. If you want to buy or sell a large number of shares, you will be asked if you are willing to trade partially when it is not possible to buy or sell the requested number of shares at the price you want.
  1. The price you want to pay – The price you want to pay determines the type of order you need to place. There are two common order types:
  • market order, where shares are bought or sold at the last recorded price;
  • limit order, where you set a limit on the maximum price you are willing to pay or the minimum price you are willing to sell. As the trading day ends, these orders automatically expire (you can prevent that by specifying a longer period).
  1. The way you want to pay – You can use the money in your cash account or borrow to buy stocks. For example, you can buy on margin or sell short. This type of investment is more complex and involves higher risks.

Review your order confirmation

Once your order is placed, you will receive a report by email, fax or mail. This report confirms:

  • what you bought or sold;
  • the price you paid;
  • the commission that you paid.

If you have sold shares, your investment firm will pay the proceeds of the sale into your account. If you purchased shares, you will not receive a hard copy of the share certificate. The investment company will keep these documents electronically.

More Information:

What is a dividend reinvestment plan?

A dividend reinvestment plan allows you to automatically reinvest your dividends by buying more shares without paying a commission. These plans are usually offered by large, established companies, which are used to paying dividends. Check a company’s website to find out if it offers a dividend reinvestment plan. You can sign up for the plan through the company’s transfer agent, or you can ask your investment firm if they can do it for you.

Three advantages of a dividend reinvestment plan

  1. You can usually buy the additional stocks for less than their current price.
  1. You avoid paying a commission.
  1. You can reinvest small amounts, often as little as $ 10.

What to do if you find an old hard copy of a share certificate?

The certificate can still have any value, even if the action no longer trades under the same name. For example, the company may have merged with another or simply changed its name. 

Below are the sites you can visit to find out about a business and whether it is still in business. 

  1. The Securities Commission of Ontario
  2. The Companies and Personal Property Security Branch, Ministry of Government Services
  3. OnCorp Direct Inc.
  4. Corporations Canada, a branch of Industry Canada
  5. The Office of the Superintendent of Bankruptcy Canada, which is also part of Industry Canada.

You may have to pay a fee for the above. 

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