A Guide on How to Buy Stocks in Canada – 5 EASY Steps

Here, we’ll go through how Canadians can buy stocks in Canada in 5 easy steps:

1. Open a Brokerage Account
2. Choose an Appropriate Investment Account
3. Develop an Investing Strategy
4. Fund Your Account
5. Start Purchasing Stocks Through Your Brokerage!

 

1. Open A Brokerage Account

While the traditional role of a stock broker still exists, many Canadians have opted to use the digital platforms now available to them.

Buying stocks in Canada and getting into investing has never been easier with a variety of tools now available to buy and sell stocks as well as to research and analyze them, all online.

Canadians have access to a variety of self-directed brokerages through the Big 5 Canadian banks, as well as a number of discount options through firms like Interactive Brokers, Questrade, and Wealthsimple.

If you’re interested in learning more about the different brokerages available to you, we have a section covering all the different platforms available to Canadians near the bottom of this article.

 

2. Choose An Appropriate Investment Account

The next decision you need to make is to choose the appropriate account type to trade in.

In Canada, there are several options to choose from with different types of benefits.

The type of account you choose to open will depend on a variety of factors related to your income level and areas in life that you choose to prioritize (children, retirement, etc).

The majority of traders in Canada will choose to open registered accounts.

Registered accounts are unique in that they are provided tax-deferred or tax-sheltered status by the government.

By trading in these accounts, the income earned will either not be taxed or taxes will be deferred until you decide to withdraw.

In contrast, a non-registered account will not enjoy the same tax benefits, requiring taxes to be paid yearly on income generated through trades. Below are some of the most common types of accounts to trade in

 

Tax Free Savings Account (TFSA)

Starting at the age of 18, Canadians are eligible to open a Tax Free Savings Account (TFSA) to set aside money tax free over the course of their life.

Income earned through these accounts will not be taxed.

After depositing money, any income earned through trading can also be withdrawn without any taxes.

Withdrawals are allowed at any time, and the amount withdrawn will be added back to your contribution room at the end of the year.

There is a limit to how much money can be deposited into a TFSA.

This limit is set by the government each year.

The TFSA began in 2009, and each year the government allocated a certain amount that individuals can put into their account.

If you were at least 18 in 2009, $81,500 is the cumulative contribution limit as of 2022.

For full details on yearly contribution limits, see this guide from the Government of Canada.

The following are permitted investments in TFSAs:

• cash
• mutual funds
• securities listed on designated stock exchanges
• guaranteed investment certificates
• bonds
• specific shares of small business corporations

 

Registered Retirement Savings Plan (RRSP)

Created in 1957, the Registered Retirement Savings Plan (RRSP) continues to be one of the most efficient retirement planning vehicles for Canadians.

While the TFSA provides Canadians the benefit of avoiding taxes at the time of withdrawal, the RRSP provides tax benefits at the time of contribution.

This means that any money contributed into an RRSP will allow you to have less tax deducted from your income that year.

For example, if your yearly income was $50,000 and you contributed $1,000 to your RRSP, you would only be paying income taxes on $49,000 of your income.

As a tradeoff, you would need to pay taxes upon withdrawal.

However, as your income is likely going to be lower later on in life, your marginal tax rate will also be lower.

The RRSP has been a method for the government to encourage saving for retirement by deferring the taxes you pay from earlier in life to later in life.

Like with TFSAs, any income earned through trading will not be taxed. As both are registered accounts, the permitted types of investments are also the exact same as the TFSA.

There are several different types of RRSPs that can be utilized.

In addition to the regular Individual RRSP, a Spousal RRSP can also be set up where the higher earning partner can contribute to their partner’s RRSP in order to take advantage of the tax benefits.

Group RRSPs are also commonly set up and funded partially by employers, similar to the popular 401(k) in the United States.

Just like TFSAs, there are limits to the amount that can be contributed each year.

The current limit is 18% of your yearly income, with a maximum of $27,230.

Unused contribution room can be carried over into following years.

While the money is generally taken out at retirement, there are also other programs in place that leverage your RRSP.

To help out younger generations, the government is allowing withdrawal from RRSPs for two new programs: The Home Buyers’ Plan (HBP) and the Lifelong Learning Plan (LLP).

Through these, Canadians can take money out to purchase a home or use it to pay for tuition.

This money can be paid back over 15 and 10 years respectively interest and tax free.

So while these accounts are traditionally aimed at longer term investors, there are also cases to be made for shorter term usage.

 

Registered Education Savings Plan (RESP)

The Registered Education Savings Plan (RESP) is a great way to start saving up for a child’s future.

Opening an RESP for a child can be done by anyone, from parents to grandparents to friends.

The money can be withdrawn and used for post-secondary education.

One of the main benefits of contribution to an RESP is to take advantage of the government matching program.

Depending on your income, the government will match a certain amount of your contributions yearly on the first $2,500 contributed into the RESP, with a maximum lifetime grant of $7,000.

The lifetime limit for contributions into an RESP is $50,000. In contrast to an RRSP, there are no tax deductions at the time of contribution.

If the child decides not to enter post secondary studies, the money can be kept in the account for up to 36 years after account opening in case they change their mind.

At that time, the money can be transferred into the RESP of a sibling or into the RRSP of the person who contributed the money.

The government grant portion of the RESP will be requested back to the government if not used for education.

Finally, as with the TFSA and RRSP, any income gained through investments in this account will be tax free.

 

3. Develop an Investing Strategy

As the different account types have shown, understanding your priorities is an important part of investing.

Accounts with flexibility like TFSAs may allow for shorter term thinking, while RESPs and RRSPs may have a 20 year and 40 year outlook respectively.

The amount of risk you are willing to take will be dictated by your time horizon.

Once you have your brokerage and investment accounts setup it is time to decide what to invest in.

There is no right answer and your strategy will depend on your own knowledge and interests.

For those who may not have time to research individual companies, investing through a robo-advisor service may be the best option.

For a small fee, the money you deposit in your account will be automatically invested.

The brokerage will use algorithms to determine the types of investments to make, and adjust as time goes on based on market trends.

This option is perfect for those who are new to the stock market and unsure of where to begin.

For those who choose to invest on their own, a self directed investing account will need to be opened.

Self-directed accounts allow individuals to make their own stock picks.

Through a self-directed account, investors can either choose to invest in index funds or individual stock picks.

 

Index Investing

The lower risk option of the two that may be more suited to beginner investors is index funds.

Rather than putting money into specific companies, index funds invest in the entire market.

By buying an index fund like the S&P 500 Index, you are buying into the 500 largest companies listed on stock exchanges in the United States rather than just one or two companies.

This strategy reduces uncertainty and risk that may come with investing in individual companies within the S&P 500 like Apple or Tesla.

For those who feel ready and capable, investing in individual companies is higher risk but has the potential to generate the highest returns.

When investing in individual companies, there are a few different strategies to consider:

 

Growth Investing

For those who are optimistic about the future, investing in growth stocks may be the best option.

As the name implies, investing in growth stocks generally means that you see the potential for future growth in a company.

Companies like this generally reinvest most of their revenue into research and development in order to stay ahead of other market competitors.

Common sectors for growth stocks include financial technologies, bio-technologies, and green energy.

 

Value Investing

For those who are looking more at the present rather than the future, value stocks may be the best option.

Value stocks refer to companies that are seen by investors as currently undervalued.

Many factors play into this evaluation, from the company’s financial status and technical trading indicators.

Value investors believe a company should be worth more than it currently is today.

 

Dividend Investing

Another strategy is to look for high dividend stocks.

Dividends are payments from companies back to shareholders that are taken from profits.

Dividend investing may not be as exciting as growth investing, but is a great way to ensure consistent returns.

 

4. Fund Your Account

With an idea of the different investing strategies in mind, the final step will be to fund your account and start investing.

While some people may choose to make investments just before the end of the tax year, a better method may be to set up automatic deposits at predetermined dates.

For example, you could set up an auto-deposit into your investment account on the same day you get your paycheque.

By doing this, you can invest your money throughout the year and continue to generate income passively.

 

5. Start Purchasing Stocks Through Your Brokerage!

Once money is on your account, you can log onto your brokerage and begin to trade.

Generally, brokerages allow you to search a company up by their either name or their ticker.

For example, you could go into your brokerage account and type in “Apple” or “APPL” in order to buy stock in Apple Inc.

Buying and selling usually can be done easily with the press of a button, after setting your desired price and choosing your number of shares.

When buying and selling, you will come across different “order types” which are also known as ways of executing a trade:

1. market order: buy/sell at the current share price
2. limit order: buy at specific price or lower/sell at a specific price or higher
3. stop loss: setting a buy/sell order once a stock reaches a certain price
4. stop limit: a limit order that is executed when a designated price point is hit.

 

Overview of the Canadian Brokerage Landscape

	Commission Fee Canadian or US Stocks Online Trade	Commission Fee Canadian or US Options Online Trade	Active Trader Pricing Flat fee reduces to	Desktop Access	Mobile App	Advanced Data Streams Available	Practice Account
Wealthsimple Trade	$0	$0	$0	No	Yes	No	No
Interactive Brokers	$1 min $0.005 USD per share for US stocks, $0.01 CAD per share for CAD stocks	$0.65 USD per contract, min of $1 USD (US) $1.25 CAD per contract, min of $1.50 CAD (Canada)	Visit website	Yes	Yes	Yes	Yes
Questrade	$4.95 min - $9.95 max (1 cent per share)	$9.95 per trade + $1 per contract	Visit website	Yes	Yes	Yes	Yes
TD Direct Investing	$9.99	$9.99 + $1.25 per contract	$7.00 - 150 trades	Yes	Yes	Yes	No
CIBC Investor's Edge	$6.95	$6.95 + 1.25 per contract	$4.95 - 150 trades	Yes	Yes	Yes	No
Scotiabank iTRADE	$9.99	$9.99 + $1.25 per contract	$4.99 - 150 trades	Yes	Yes	Yes	Yes
BMO InvestorLine	$9.95	$9.95 + $1.25 per contract	5 Star Program	Yes	Yes	Yes	No
RBC Direct Investing	$9.95	$9.95 + $1.25 per contract	$6.95 - 150 trades	Yes	Yes	Yes	Yes
National Bank Direct Brokerage	$0	$0 + $1.25 per contract	NA	Yes	No	Yes	No
Qtrade	$8.75	$8.75 per trade + $1.25 per contract	$6.75 - 150+ trades	Yes	Yes	Yes	Yes
Virtual Brokers	$1.99 min - $7.99 max (1 cent per share)	$7.99 per trade + $1.25 per contract	$3.99 - 150+ trades	Yes	Yes	Yes	Yes

 

Online Self-Directed Brokerage Firms

Over the last decade, there’s also been a new wave of dedicated online brokerages that have been gaining popularity among Canadians.

 

1.1 Interactive Brokers

IBKR was ranked #1 in 2020 by Barron’s in their evaluation of the best online brokers, tying with Fidelity for the top spot.

IBKR has been around for decades and while they’re an American company, they’ve been available to Canadians for many years.

While they don’t have an office in Toronto, their Canadian headquarters are based out of Montreal.

IB takes the learning part of trading seriously with video tutorials, trader’s insights, and daily overviews of the market, much like traditional brokerages.

Under their fixed commissions structure you pay:

$0.005 USD per share for US stocks

$0.01 CAD per share for CAD stocks

Minimum commission of $1

For higher volume traders, Interactive Brokers offers a tiered commissions structure.

Options:

US: Depends on the premium and ranges between $0.25 – $0.65 USD per contract with a minimum per order of $1 USD, price goes down if your monthly volume is higher

Canadian: Starts at $1.25 CAD per contract, minimum per order of $1.50 CAD, price goes down if your monthly volume is higher

ETFs: Some US ETFs are available commission free however transaction fees may be passed on to you

IB offers cash and margin accounts as well as various investment accounts.

Interest rate to borrow on margin accounts is one of the lowest in the industry and interest paid to you on uninvested cash balances is one of the highest in the industry.

In addition, IB has invested considerably in their platforms and tools.

One to note is the IB SmartRouting technology, which aims to get you the best possible price on stocks/options at the time of execution.

 

1.2 Questrade

Questrade is likely the most popular online discount brokerage and offers the same registered and non-registered accounts that a bank brokerage offers.

It also offers no fees on purchasing pre-built ETFs which can be excellent for new investors trying to find their way in the world of investing.

Moreover, because users are not able to meet in-person with financial advisors, Questrade offers a live-chat along with over-the-phone and email support for its customers.

For those investing in the pre-built ETFs, Questrade offers a monthly management fee of 0.25% which reduces to 0.20% after $100,000.

Commissions start at 1 cent per share with a minimum of $4.95 to a maximum of $9.95 for Stocks and $9.95 per trade + $1 per contract for Options.

Both cash and margin accounts are available.

See how Questrade stacks up against Interactive Brokers.

Current Promo: Get $50 in trades for free!

 

1.3 Qtrade

Qtrade is a Canadian brokerage based in Vancouver that’s been operating since 2001.

Qtrade offers a flat commission fee of $8.75 per stock trade but also offers commission-free trading of its own selected ETFs (for the first 100 invested in).

They also incentivize more frequent trading by reducing that per-trade commission down to $6.75 if investors carry out 150+ trades per quarter, and/or keep $500,000+ in assets.

Qtrade offers many registered and non-registered account types including cash, margin, TFSA, RRSP, RRIF, RESP and more.

 

1.4 Virtual Brokers

Virtual Brokers is a Canadian company owned by BBS Securities that came to market in 2009.

Headquartered out of Toronto, VB has consistently won many awards over the years, including best online broker.

Similar to Qtrade, Virtual Brokers also offers free ETF purchases and also has a comparatively affordable commission range of $1.99 – $7.99 per trade.

Commissions for stocks start at 1 cent per share, with a $1.99 min and a $7.99 max.

Options trades cost $7.99 per trade + $1.25 per contract.

Active trader volume of 150+ trades will allow you to trade stocks for a flat fee of $3.99 and options for $3.99 + $1.25 per contract.

They also offer dual currency (USD/CAD) for all of their accounts as well as registered and non-registered options.

 

Pros & Cons of Online Self-Directed Brokerages

Pros

• Advanced trading platforms and tools
• Moderate fees
• Focused on one business – being a brokerage

Cons

• Fund transfers take a few business days and can be complicated
• Support options are limited

 

Big 5 Bank Self-Directed Brokerages

The Big 5 Banks are usually the first option many Canadians think of when considering a brokerage to begin their investing journey.

It seems like a natural choice given that most of us already have a relationship with one or more of the big 5 banks, the trust factor is definitely there, so it’s a good place to start.

The Big 5 provide a wide variety of offerings that may appeal to the modern investor.

 

2.1 TD Direct Investing

TD offers several platforms to purchase and research stocks including WebBroker, TD Trading App, Advanced Dashboard and thinkorswim, which vary in terms of capabilities and depth of information.

TD Direct Investing offers a $9.99/trade flat commission fee to trade Canadian and US stocks and a $9.99 fee + $1.25 per contract to trade Canadian and US options for online trades.

Active traders, trading 150+ trades per quarter, will pay a reduced fee of $7.00/trade.

Cash and margin accounts are both offered as well as investment accounts.

Phone support is also just a call away, however commission rates are higher for orders placed on the phone.

TD customers with existing savings of chequings accounts can transfer funds to their WebBroker account in real-time and can also easily withdraw funds once they are clear.

 

2.2 CIBC Investors Edge

CIBC offers a $6.95/trade flat commission fee to trade Canadian and US stocks and a $6.95 fee + $1.25 per contract to trade Canadian and US options for online trades.

In terms of pricing, they’re the only big 5 bank charging a commission lower than the $10 mark.

Active traders, trading 150+ trades per quarter, will pay a reduced fee of $4.95/trade.

Cash and margin accounts are both offered as well as investment accounts.

Trade using their desktop platform or their mobile app or also call in your trades if necessary, but note that commission fees are higher on trades placed over the phone.

 

2.3 ScotiaBank iTrade

While it’s been a long time since the purchase, Scotiabank’s iTRADE was largely built from their purchase of ETRADE Canada in 2008.

While Scotiabank had a brokerage business long before this purchase, their foray into offering a succinct online platform really took foot after the acquisition.

Scotiabank has obviously invested a lot of resources into their platforms and delivers a solid offering for Canadians.

Scotiabank also purchased Charles Schwab’s Canadian business in 2002.

iTRADE offers a $9.99/trade flat commission fee to trade Canadian and US stocks and a $9.99 fee + $1.25 per contract to trade Canadian and US options for online trades.

Active traders, trading 150+ trades per quarter, will pay a reduced fee of $4.99/trade.

Cash and margin accounts are both offered as well as investment accounts.

Phone support is also just a call away, however commission rates are higher for orders placed on the phone.

 

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2.4 BMO InvestorLine

BMO InvestorLine has typically catered to the more experienced trader.

With a great suite of tools, their commission structure is similar to the other banks at $9.95/trade flat commission fee to trade Canadian and US stocks and a $9.95 fee + $1.25 per contract to trade Canadian and US options for online trades.

InvestorLine however does not have the same active trader discounts.

They use a tiered system that’s based on either trades per quarter or assets in your account.

Based on your tier, you may be eligible to be part of their 5 Star Program, as either a Gold, Platinum of Diamond member.

The 5 Star program includes specific pricing and discounts, priority support and access to the BMO Market Pro platform among other benefits.

Cash and margin accounts are both offered as well as investment accounts.

Phone support is also just a call away, however commission rates are higher for orders placed on the phone.

 

2.5 RBC Direct Investing

RBC Direct Investing offers a browser based platform as well as a mobile experience.

Their mobile experience was long overdue for a refresh, which RBC was aware of and a newly released mobile experience for direct investing clients built into the RBC app is now available, having come to market in May .

RBC Direct Investing offers a $9.95/trade flat commission fee to trade Canadian and US stocks and a $9.95 fee + $1.25 per contract to trade Canadian and US options for online trades.

Active traders, trading 150+ trades per quarter, will pay a reduced fee of $6.95/trade.

Cash and margin accounts are both offered as well as investment accounts.

Phone support is also just a call away, however commission rates are higher for orders placed on the phone.

 

2.6 National Bank Direct Brokerage

On August 23, 2021, National Bank Direct Brokerage became the first bank brokerage to start offering $0 commission trades.

This is an important milestone for Canadians and I feel that other banks will eventually follow.

If you’re looking for the backing of a bank, National Bank has been evolving their Direct Brokerage offering recently and may be a good choice for you.

Note that options trades are $0 + $1.25 per contract, with a minimum charge of $6.25.

 

Pros & Cons of Big 5 Bank Brokerages

Pros

• Trust factor – Backing of large institutions
• Easy to transfer funds
• Extensive support options available

Cons

• Higher fees
• Platforms and tools are lacking at some
• One of many businesses the bank operates

 

No Fee Self-Directed Brokerage Firms

The well known no fee Robinhood app has been gaining tons of popularity, and even though Robinhood is not available in Canada, Canadians luckily have a great option at home!

Wealthsimple Trade is the first zero commission stock trading app in Canada.

That’s right – buy and sell stocks with absolutely $0 in commission fees!

It’s a do-it-yourself brokerage, which is fantastic for those looking for a no frills approach to save on commission fees.

If you’re someone that does your own stock market research and want to avoid commission fees altogether, read our Wealthsimple Trade Review and decide if this is the right choice for you.

At the same time, if you are looking for detailed data about a stock or information about a company before initiating a trade, you will need to use a combination of Wealthsimple Trade and another tool or platform for research.

 

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Must Know Investing Terms

As you begin your investing journey, below are a few important terms to know. These may show up when you navigating your brokerage platform or researching a company and reading through investor materials like financial statements and quarterly reports:

Bid Price: the dollar amount a buyer is willing to pay for a share of stock

Ask Price: the dollar amount a seller is willing to sell their share of stock for

Earnings per share (EPS): a company’s profits divided by the number of shares the company has outstanding

EBITDA: Earnings before interest, tax, depreciation, and amortization, one of several metrics used to determine a company’s profitability

Free Cash Flow: cash a company has leftover after paying for all of its expenses and capital expenditures

Market Capitalization: the market value of a company’s total oustanding shares, calculated as the current share price multiplied by the total number of shares outstanding

Enterprise Value: another measure of company’s total value – it is calculated as a follows: market capitalization – cash + debt

Price-to-Earnings (P/E) Ratio: the ratio between a company’s current share price and its earnings – it is calculated as: share price / EPS

Margin Investing: an advanced investing technique that allows investors to buy a stock by borrowing money from their broker

 

Additonal Investing Resources

For those interested in gaining a deeper understanding of overall markets, individual stocks, and the financial system as a whole, several resources are available online:

Investopedia: Financial website that provides definitions for investment terms, advice, reviews, ratings, and comparisons of financial products.

Yahoo Finance: Offers a variety of helpful information including interactive charts, stock quotes, historical data, financial news and more.

SEDAR: The electronic system for the official filing of documents by public companies and investment funds across Canada. All documents filed by public companies can be accessed on this website.

SEC EDGAR: The U.S. equivalent of SEDAR (see above)

Financial News Sites: Financial Post, Bloomberg, Wall Street Journal, and others are all good sources of information on the financial markets

Books: The Intelligent Investor, The Essays of Warren Buffett, The Little Book that still beats the Market, The Richest Man in Babylon

 

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