How Do I Actually Purchase a Stock on the Stock Market?
You can only purchase a stock through a broker or a brokerage. As this site is about doing things yourself, I am only going to highlight discount brokerage options. A discount brokerage is a brokerage that charges you significantly lower fees each time you buy and sell a stock but does not provide any financial advice like a full-service brokerage would.
MoneySense magazine recently discussed Canada’s best online discount brokerages. The list includes:
- TD Direct Investing
- QTrade Investor
- CIBC Investor’s Edge
- Virtual Brokers
- Desjardins Online Brokerage
- BMO Investor Line
- National Bank Direct Brokerage
- Scotia iTrade
(Brown, Mark. “Canada’s Best Online Brokerages 2017.” MoneySense 2017. www.moneysense.ca Web. 02 Oct. 2017)
MoneySense also gives a good comparison of Canadian brokerages here.
American discount brokers include:
- Fidelity Investments
- Merrill Edge
- Charles Schwab
- Interactive Brokers
Any of these brokerages will set you up with your own account where you can buy and sell stocks with minimal fees each time you buy and sell. If you want to get into investing in the stock market and learning more about it, you need to set yourself up with an account!
As Questrade came out on top in many categories in the MoneySense article (notably in the “Getting Started” category), can be utilized by both Canadian and American citizens, has no annual account fees AND has the lowest commissions, I am going to walk you through how you set up an account at Questrade. Although, you would go through a similar process with any of the other brokerages.
The Questrade website appears very user friendly and following along with its instructions, you will do the following:
1. Have $1,000 ready to fund the account. This is the money you need to start off with in order to make any investments. You will need this amount as a minimum to get started using Questrade. You will then transfer that money to your Questrade account from your existing bank account electronically once it is opened and that will be self-explanatory once your account is opened. Many of the other discount brokerages above do not require any minimum amount to fund the account at the start so you may want to consider going with one of those if you don't have the $1,000 to get started with Questrade. You may also want to go with the discount brokerage arm at your existing bank.
2. Go online to Questrade and click on Open An Account.
3. You will see there is a discussion of the different types of accounts. If you want to buy and sell your own stocks for you personally, you will want to open their Margin Account and within that category, you will want to open a Standard Account. (If you are Canadian, you may want to open an RRSP account if that is the route you wish to go. The advantage with this type of account is that any profits you make are not immediately taxable as income to you at the end of the year. You shouldlook into RRSP v. Standard Account further before deciding which one to open as they do have different tax consequences. For basic information check out my post on How Are Stocks Taxed?) Either way, you will get going with investing once you open an account.
4. Click on the Join now icon and fill out the personal information.
5. When asked to choose how you would like to invest, choose Questrade Self-Directed Investing.
6. Proceed to complete the application form and make sure you check to see if there are any promotion codes you can use at the time you are signing up (such as a 5 free trades coupon).
7. Once you have opened and account and have your funds in the account, you are ready to buy and sell!
Once you are ready to buy or sell you will need to know the following additional information:
1. How much of the stock you want to buy or sell as there may be a minimum amount you can buy or sell; and
2. Whether you want to place a market or limit order. A market order indicates you want to buy or sell at the latest price. This is what most of us think about when we envision buying a stock. By and large this is likely the way you want to go as you have done your research and are ready to buy the stock at the price it is generally trading at that day.
A limit order means you are indicating the highest price you want to buy at and the lowest price you are willing to sell at and these instructions expire at the end of the trading day unless otherwise specified. If the price of the stock never falls within those parameters, the trade will never be executed. However, if for example, you only want to buy Apple stock if it is $100 or less, and sometime throughout the day it does hit the $100 mark or less, the order will be filled for you.
So, it is that easy. I think the process has been simplified a great deal over the years to allow people like you and I to get involved in our own investing. Each time you buy and sell, you will be charged a fee and that is why it is important for you to look into as lowest fees as possible (without compromising other features you may want on your brokerage account).
Plus, Questrade has a practice account! This looks really neat as you can try it all first for 90 days with a virtual amount of money to get the hang of the buy and sell. This feature is great for us beginners. I will give it a try and report back in a post.