Most Canadians do their investing with banks or financial advisors. When they want to invest in equities, typically mutual funds are used. Whether they are high priced or low priced, mutual funds are pretty easy to buy. You just tell your advisor which funds to buy and hand a cheque over. How to sell an ETF or stock — step by step directions. Buying individual stocks or ETFs exchange traded funds at a discount brokerage is an entirely different experience.
It can be a bit intimidating to place a order with a discount brokerage for the first time. Note — This article will not cover asset allocation or how to decide which ETF or stock to buy. It might also convince you to stick with mutual funds. Pick a discount brokerage. Here is my Canadian discount brokerage comparison for reference.
There are a lot of different costs involved when choosing a brokerage, so make sure you understand what type of investor you will be and how big your portfolio is.
You can save quite a bit of money if you pick a brokerage that suits your investment style and portfolio size.
Set up the account. This is the most painful part of the process. You have to fill out documents, mail them in, set up logins etc. It takes a while, but you only have to do it once. Send a cheque, move money electronically or transfer existing stocks or ETFs from another investment account.
I have bill payments set up for my Questrade accounts and I just have to make a payment to move money from my CIBC chequeing account. Decide what to buy. Buy a stock or ETF. This is the topic which will be detailed here.
Five per cent of my portfolio is made up of real return bonds. Every security that trades on a stock exchange will have a stock ticker symbol. This symbol will be needed to make the purchase. There are a number of ways to find out the ticker symbol. In my case, I can go to the iShares. Another method is to type in the name of the security into a quote site like Yahoo Finance. The answer is that they are both right. There are different stock exchanges in different countries and the security you want to purchase will be traded on one or more exchanges.
If the security you wish to purchase is Canadian, it will likely be traded on the TSX Toronto stock exchange and you have to select that stock exchange when making the order. Understand that some stocks are traded on both the Toronto stock exchange as well as the New York stock exchange. Make sure you use the proper ticker symbol or select the proper exchange!
Once I calculate how much money I need for a purchase, I like to convert any money necessary to make sure that there is enough of the proper currency to cover the purchase. Unlike mutual funds which can be purchased in partial units, stocks and ETFs can only be purchased in whole shares. This can also be done on the trading platform at your discount brokerage.
I use Yahoo Finance for this purpose. When I enter XRB. To calculate how many shares I can buy, I have to divide the desired purchase amount by the share price and then drop any decimals. If you have enough money in the account to cover, you also have the option of rounding up the number of shares to 82 shares. The trading commission will be deducted from your cash in the account.
Once you place the order, the purchase will get completed or filled as soon as enough shares are offered on the exchange. For larger companies and high volume ETFs, this will happen instantly.
A limit order means you specify an upper limit for the price of the shares. The reason I would do this is to avoid the possibility that trading is light and you end up buying shares at a rate above the market. This is practically impossible if you stick to liquid, high volume stocks that have many shares trading at any given time. In theory, limit orders are safer than market orders.
My current process is to always place a limit order just to be on the safe side. With Questrade, you have to log into your main account at myquestrade. Other discount brokerages will have just one login. Before I enter the order, I want to make sure I have enough Canadian dollars to fill the order. Check with your brokerage to find out what happens if you make a purchase without enough cash in that currency. At Questrade, this currency conversion costs 0. Other brokerages typically charge around 1.
If this is your first time, you have to select which trading platform you want to use. I use QuestraderWeb which is the free trading platform. The form on the right hand side is used to enter an order. If it is unfilled at that time, then it disappears. The next step is to verify the share price by clicking on the QUOTE button at the bottom of the form. This is your last chance to verify the order information. Some brokerages including Questrade add another fee to the commission called ECN fees.
They are fairly small, but if you are doing high volume trades, it can be a factor. When I look at the execution detail after the business close, I see there is an ECN value which has been charged as well. My 41 share trade has an ECN fee is Another strategy is to put a limit price that is lower than the current market price and hope that the market drops and you can buy at a lower price.
In this case you will have a pending order which can be cancelled. If the stock is more volatile you might have to set a higher limit because the stock could jump past the limit before you place your order. You want to set the limit high enough about the regular price points in order for the order to get filled quickly.
For example if you check the price of a stock every 60 seconds and see the following: It is a bit stressful to be doing your first trade with a lot of money — I suggest starting off with a small trade or two just to get familiar with the process. Questrade offers a free trading platform trial which you can access to try some test trades.
Please let me know if you have anything to add to this information based on your experience with different brokerages. See it on Amazon now. That is one heck of a detailed post Mike, nicely done! I agree with not placing the order after the markets are closed, you could be in for a surprise in the morning. I also like the idea of doing a couple of test trades if possible rather than making a few small trades to try and learn the process.
I remember making my first ETF purchases — they were fairly large, which just added to the stress. Wow, this is an epic post! Am in the process of transferring out of mutual funds. Does TD have a place where one can practice before placing orders. If someone can do an article similar to this one to show how one can navigate the TD platform it would be great! How would you handle an order where you want to specify that all earnings are to be reinvested in the same ETF?
That is not part of the purchase order. Contact TD for details. I use questrade too, and find it pretty simple to use… but their interface for actually tracking stocks sucks. In those instances, I shift over to google finance to track it over time.
And then switch back to make trades. Not sure if you found a better way? Like a watch list or do you mean tracking your entire portfolio? What is the difference between removing and adding liquidity to the market? An ECN routes your order to an exchange or market. Nearly all routes charge an additional fee if a trade removes liquidity from the market. In very general terms, if you have an open order that is pending, waiting to be filled, you are adding liquidity. Conversely, if you send an order that is immediately filled then you are removing liquidity.
For more information about adding and removing liquidity — including how to avoid ECN charges — please visit our website http: Client Services is equipped to explain the nuances of ECN fees and liquidity beyond my general answer — you can reach them by phone, email and live chat through our website.
Great step-by-step guide with screen shots Mike. This is the best guide I have come across so far! This is surely one of those posts that will be a great resource for people looking to get started in investing on their own.More...