If you decide to invest in stocks, you’ll need to understand how and where stocks are bought and sold. It is not a complicated process in Canada. Read more about how to buy and sell stock.
On this page you’ll find
How do you buy stock?
You buy stock from an investment firm, commonly known as a brokerage firm. The investment representative or advisor who sells you stocks is commonly known as a stockbroker or broker. You can buy stocks by paying cash, borrowing on margin or reinvesting your dividends.
You can buy stocks from a few different places:
- 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 portfolio for you.
Choosing who to work with is an important step. You’ll also need to open an investment account with them to start buying stocks.
Anyone selling securities or offering investment advice must be registered with their provincial securities regulator, unless they have an exemption. Check registration through the Ontario Securities Commission or Canadian Securities Administrators.
How do you open an investment account?
Before you can buy stocks, you must open an account with an investment firm. There are two 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 account – If you want to borrow from your investment firm to invest, you have to open a margin account. You’ll have to read and sign a margin agreement.
You can also hold stocks within registered plans, such as RRSPs, RESPs and TFSAs. These are always cash accounts — you can’t buy investments for a registered plan on margin. Registered plans can hold a variety of investments as well as savings deposits.
How do you place an order to buy or sell 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.
To place an order, you need to know these four things:
- What you want to buy or sell –You may be able to place multiple trades on one 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 –stock 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.
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.
Read your order records carefully. It’s up to you to report any errors in your order.
What are the fees for buying and selling stocks?
When you buy and sell stock, you pay a fee to your advisor or investment firm. This fee is called a commission.
The return you get from any stock investment will be reduced by what you pay in commissions and fees, and any tax you pay on the money you make.
The range of fees depends on the type of firm you invest with.
|Type of firm||Do they offer advice?||Fees|
|Full-service investment firm||Yes||Commission-based account – commissions typically range between $75 and $100 each time you buy or sell.|
Fee-based account – you pay an annual fee, which includes the cost of advice and trading commissions. The fee is typically 1-2% of the value of your account.
|Discount brokerage firm||No||Varies, based on the size of your trade and/or account. Typical fees range up to $30 each time you buy and sell, but some start as low as $5.|
For example, if you invest $1,000 in a stock and make $80 when you sell — that’s an 8% return on your investment. If you pay a $10 commission for the sale, then you only get to keep $70. So, your 8% return drops down to 7%.
As another example, if you invest $1,000 in a different stock and make only $50 (or 5%) — you have to pay the same $10 fee to the advisor. That means you get to keep only $40, and your return drops from 5% to just 4%.
How can you reduce paying commissions?
- Limit your trading –If you buy and sell stocks often, you’ll pay a lot in commissions. This will reduce your returns.
- Ask for a lower rate –If you trade frequently enough to be considered an active trader, your advisor or investment firm may give you a better deal on commissions.
- Pay for the level of service you need –If you’re new to stock investing, you may want the advice of an advisor at a full-service firm. If you have experience investing in stocks and doing your own research, you’ll save in commissions with a discount brokerage.
Learn more about how advisors are paid.
When the market is volatile, some investors may be tempted to trade frequently to try to mitigate their losses. This strategy can backfire due to increased fees and commissions because of increased transactions. Learn more about behavioural biases during market volatility.
What do you do if you find an old paper stock certificate?
An old stock certificate 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.
If you decide to invest in stocks, there’s a few things you should understand, including:
- You need to open an investing account to buy and sell stocks.
- You can work with an investment firm, discount brokerage, or portfolio manager.
- To make an order (or buy a stock) you’ll need to know what stock you want to buy, how much, and how you want to pay.
- When you buy stock, you’ll pay commissions. These will reduce your return when you sell.
- You can reduce the commissions you pay by limiting your trading, asking for a lower rate, or paying only for the services you need.