How to buy and sell stocks
You buy stocks from an investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition firm, commonly known as a brokerage firmBrokerage firm A company, corporation, partnership, or other organization that buys and sells stocks, bonds and other investments for investors.+ read full definition. The investment representativeInvestment representative See Dealing representative.+ read full definition or advisor who sells you stocks is commonly known as a stockbroker or brokerBroker A registered person who brings together someone who wants to buy investments with someone who wants to sell. Brokers often charge a fee or commission for buying and selling investments for you.+ read full definition. You can buy stocks by paying cash, borrowing on margin or reinvesting your dividends.
Where to buy stocks
- Full-service investment firms – You’ll pay fees and commissions for the investment advice they give you, and for buying and selling stocks.
- Discount brokerages – These tend to be online firms. You’ll pay lower commissions because you don’t get advice or help choosing investments.
- Portfolio managers – These advisors, and the companies they work for, focus on clients with a higher overall net worth, usually $250,000. They’ll manage your investment portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition for you.
Anyone selling securities or offering investment advice must be registered with their provincial securities regulatorSecurities regulator A government agency that enforces the securities act in jurisdiction it has authority over. This act is made up of laws that establish rules for issuing and trading securities. The Ontario Securities Commission is the securities regulator for Ontario.+ read full definition, unless they have an exemption. Check registrationRegistration A requirement for any person or company trading investments or providing advice in Canada. Securities industry professionals are required to register with the securities regulator in each province or territory where they do business.+ read full definition through the Ontario Securities Commission or Canadian Securities Administrators. Learn more about working with an advisor.
Opening an investment account
Before you can buy stocks, you have to open an accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition with an investment firm. There are 2 main types:
- Cash account – This is the most common type of account. It allows you to pay cash for your stocks. You will have to fill out an account opening form or an investor profile form (also known as “know your client” information). Your investor profile helps your advisor understand your goals and your tolerance for risk.
- Margin accountMargin account An account you open to buy investments using money borrowed from a stockbroker. Limits apply to what you can borrow. Not available from companies registered only as mutual fund dealers.+ read full definition – If you want to borrow from your investment firm to investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition, you have to open a marginMargin A way to buy investments by borrowing money from a stockbroker. You must also invest some of your own money first. The extra that you borrow is your margin. Some rules apply about the size of margin that you can have.+ read full definition account. You’ll have to read and sign a margin agreement.
You can also buy stock for registered plans, such as RRSPs, RESPs and TFSAs. These are always cash accounts – you can’t buy investments for a registered plan on margin.
Learn more about opening an investment account.
Buying and selling stock
You can give your advisor or investment firm instructions to buy or sell a stock in person, by phone or online. This is called placing your order. You’ll pay a commission each time you buy or sell a stock.
4 things you need to place an order
- What you want to buy or sell – You may be able to place multiple trades on 1 order. Your advisor or investment firm will confirm your specific choices before placing your order.
- How much you want to buy or sell – You may need to buy a minimum amount of the stock. If you’re buying or selling a large amount, you will be asked if you’re willing to do a partial trade if they can’t buy or sell the full amount at the price you want.
- The price you want to pay – This will determine the kind of order you place. Two common types of orders are:
- market order – stockStock An investment that gives you part ownership or shares in a company. Often provides voting rights in some business decisions.+ read full definition is bought or sold at the latest price
- limit order – you set a price limit for the highest price you’re willing to pay or the lowest price you’re willing to sell at. The order will expire at the end of the trading day, unless you specify a longer time limit.
- How you want to pay – You can use money from your cash account, or you can borrow to buy stocks. Examples: buying on margin, short selling. This type of investing is more complex and comes with higher risks.
If you have a complaint
If you want to make a complaint about your advisor or investment firm, here’s what to do.
Reviewing confirmation of your order
Once your order is filled, you’ll receive a record of your order by e-mail, fax or mail. It will confirm:
- what you bought or sold
- the price you paid
- the commission you paid.
If you sold a stock, your investment firm will put the money from the sale in your account. If you bought a stock, you won’t receive a paper share certificate. The investment firm keeps these records electronically.
Dividend reinvestment plan (DRIP)
A DRIP lets you automatically reinvest dividends by buying more shares without paying a commission. DRIPs tend to be offered by larger, well-established companies with a history of paying dividends. Check a company’s website to find out if they offer a DRIP. You can enrol yourself in the plan through the company’s transfer agent, or your investment firm may be able to do this for you.
3 advantages of a DRIP
- You can usually buy the extra shares for less than their current price.
- You can avoid paying a commission.
- You can reinvest small amounts, often as little as $10.
If you find an old paper stock certificate
It may still be worth something even if the stock no longer trades under the same name. For example, the company may have merged with another company or simply changed its name. Here’s where you can go to find out more about the company and if it is still in business. You may have to pay a fee.
- Ontario Securities Commission
- Ministry of Consumer and Business Services Companies and Personal Property Security Branch
- OnCorp Direct Inc.
- Industry Canada, Corporations Directorate Corporations Branch
- Office of the Superintendent of Bankruptcy Canada
Read your order records carefully. It’s up to you to report any errors in your order.
2 key points
- Market order – you buy or sell at the latest market priceMarket price The amount you must pay to buy one unit or one share of an investment. The market price can change from day to day or even minute to minute.+ read full definition
- Limit order – you set a price limit for the highest price you’re willing to pay or the lowest price you’re willing to sell at