How to buy stocks
It never occured to us at stocktrades.ca that there was a need to explain how to actually buy stocks. We thought that selecting winners and avoiding taxes were the ultimate needs of our readers. How wrong we were beacause recently we were asked just that. How do you buy stocks?
First of all stocks are different from other investments because they are pieces of an actual company. Unlike mutual funds which are investments that are comprised of any number of companies and are repackaged and sold to an end user. Additionally there is more than one type of stock, for examples stocks can be purchased based on the class of shares, different classes offer different privalages. But for this article we will assume that common stock is being purchased.
To buy or sell any stock you need to get in contact with a broker. A broker is a liscenced individual
or corporation that will purchase and sell shares in the market on your behalf. Brokers are trained in the
legal requirements that need to be followed in order to make these transactions, ie. registering trades with the appropriate governing authorities.
The most basic decision an investor must make is the type of brokerage house they want representing them. As of today there are essentially two options, discount brokerage or full service brokerage. This decsion is far from easy to make. A discount broker will not offer guidence as to which purchases you make. Discount brokerages are online entities like etrade.ca, or questtrade.ca. More often than not these companies will provide a research platform to view fundemental data for companies trading on exchanges that you are investing in. However, if you are reading this article on how to buy stocks chances are that you don’t know how to choose them either. Conversely at a full service broker you will be provided with research based on your investing style and risk tolerance. Essentially you will have a guide to help you navigate through different investments. A full service brokerage will provide you with an account manager that will be there to answer questions that may arise about your future or current investments.
In addition to the differences listed above between full service and discount brokerages there is another important consideration to keep in mind and that is whether you want to keep stocks inside your RRSP or not. There is plenty of information on RRSPs on stocktrades.ca. Before you make any decsions it is important to keep in mind the tax saving benefits of RRSPs as opposed to holding stocks outside of a plan which will then be subject to full taxation.