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Back to the Basics


A lot of people I meet always ask me how I buy my equities and investments.  In the age of the Internet, it’s actually quite simple.  It’s actually much more simple than say … using Facebook.  In the past people had to know a broker or call a broker.  It was cost prohibitive and investing, for most people, only made sense for the rich.  Not anymore!  Don’t believe in the myths that you read that you have to have a lot of money to be investing in equities.  That’s simply a lie.  Don’t fall into a trap where people say that if you have very little money the only way you can make money is by buying cheap penny stocks that carry a high risk.  That is also a lie.   Just remember, everything is relative.  A 10% gain is a 10% gain, it doesn’t matter if it comes from a $0.10 stock or a $100 stock.  At the end of the day it’s 10%.

So let’s face the facts.  You want to start putting some money away, but you don’t know how to do it.  Well first off, you really should be talking to an advisor at the bank about the options you have in opening an investment brokerage account.  In Canada, all the five big banks have brokerage accounts available to the public.  Let them know you are interested in opening a self-directed investment account and they should tell you the options.  If you don’t already have one.  I highly recommend opening a TFSA account as a self-directed investment account.  This gives you the most options, because you can buy fixed assets such as GICs and also have the opportunity to buy equities if you so desire.

Of course there are also many online brokerages that you can sign up and trade with.  Questrade is one of them, but there are many more.  You can see all the options available from this Globe and Mail article.  Choose the one that is right for you.  Generally you want to look at trading fees, inactivity fees and potentially annual fees for having an account.  Some institutions may require you to have a minimum dollar amount to qualify for a no fee account.  Don’t be afraid to ask the institution to waive the fee for the first year.  You never know what they will say.

So you want to trade, but you don’t know how.  Like I mention.  It’s very easy, maybe too easy.  Let’s look at some of the things you need to fill in on any trading interface (my experience below is from the iTrade interface, but many are very similar) and answer some of the lingering questions you may have when faced with trading an equity:

Symbol – Quite simply this is the symbol for the stock or mutual fund you want to trade.  Most platforms will let you search for it (ie. search for Apple and you will find AAPL) Remember that you want to look for the symbol in the right stock exchange.

Market – Just remember that if you are looking for something on the TSX it’s Canadian.  Likewise for the S&P or NASDAQ it’s on the US side.  Canadian brokerage companies will most likely not trade in the non North American markets.  One thing to note, is that if you are trading in the US markets, you will be buying and trading in US denominations.  This means there is usually a commission fee to exchange currency.  Take note of that.  Not all brokerage firms support US and Canadian dollar currencies in your account so each transaction may result in an exchange rate commission.

Order Type – Buy or Sell.  It’s quite simple.  Pick the action you want to perform.  Of course if you don’t own anything you have nothing to sell.

Quantity – How many shares do you want to buy.  This is usually only available when you are buying individual stocks or bonds.

Amount – The dollar amount that you want to buy.  Only available to mutual funds because mutual funds will support partial shares and therefore you don’t need to specify a specific quantity.

Price Type – The simplest is to do “Market”, but there may be times when you don’t want to do this.  We’ll cover these types in a later post.  Market means you pay the price that the market is asking for.

Term – This indicates how long the order is valid for.  Generally, you will want to put in a “Day Order”.  Remember that you may put an order to buy or sell, but there is a possibly that it may not get fulfilled.  In general if you do “Market” pricing it will get fulfilled.

All or None – This is what it means.  All or nothing.  If you want to buy more than 1 share, then most system will try to fulfill as many shares as you ask for, but it may not fill them all if no one is willing to sell or buy the shares you ask for.  By selecting “All” you force the system to make sure that someone can fulfill your entire request, otherwise it will not complete the transaction.

That’s it!  Those are the only fields you have to fill in.   Prior to confirming your order, just double check to make sure the quantity or dollar amount that you specified was correct.  It’s very easy to punch in an extra zero here or there that might make you buy more than you want (yes, it’s happened to me before).  There won’t be any questions asking where you live, or what your favourite colour is or what your education background is.  It’s much easier than playing around with Facebook or LinkedIn.  There are many advanced features that one can take advantage of on each of the brokerage interfaces, but the basics are generally all you need to get yourself going.

Remember investing should be a long term commitment.  Before you buy something, ask yourself if you are ready for the commitment.  Through the ups and downs.  The bad news and the good.  Till death do you part.  OK not that long, but you get the picture.

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