Compare online stock trading platforms in Canada

Compare online trading platforms

So far, 2021 has demonstrated the potential for everyday investors to profit from trading stocks online – as well as the risks involved. Investors gathered in trading chatrooms and armed with online trading accounts have sent the prices of some stocks on wild rides and become the talk of the financial world.

Good news, though: you don’t have to be a furious full-time day-trade warrior to make money trading stocks online. You can start with a few dollars, a few clicks and a little time.

With online stock trading platforms, you can trade quickly and easily through trading website and apps. While online trading is an efficient, convenient way to invest money, it does carry some risk.

What is online stock trading?

Trading is a more involved approach to investing and is also referred to buying shares or stocks. Instead of borrowing money or trying to raise capital, companies sell shares or partial ownership of the company to raise funds for expansion. Online stock brokers make it easy to place a trade through the click of a button.

How to buy stocks online

While online stock trading can seem overwhelming, getting started is actually very easy. However, if you’re new to online trading, it doesn’t hurt to get a little practice before you jump in. Consider paper trading until you understand the basics or graduate to an online trading account, then consider charting software for more advanced online trading.

Once you’re ready to open an online trading account, you’ll need to decide which platform is right for you. The process will vary for each platform, so make sure to consider ease of use when choosing a product. Compare your options to find an online broker that offers the features, fees and capabilities that you want, then sign up to start trading.

Step 1: Visit the website or mobile app of your preferred platform and open an account.

There are many online brokerages available for Canadians to buy stocks. Some focus on low-cost trading, while others charge higher fees and commissions but offer advanced tools to help you make investment choices. All of Canada’s largest banks offer online trading platforms. Opening an account is easy. In most cases you simply need to enter some personal information and you can begin trading almost immediately.

Step 2: Figure out what kind of stock trading account you will open.

Generally speaking, your choice will be between an RRSP, a TFSA, and a non-registered account. The first two account types are government-sponsored savings vehicles that have certain tax advantages. A non-registered account does not have any such benefits, so you’ll have to pay the taxman on any investment gains you enjoy.

Step 3: Decide on an investment approach.

Before you start trading, it would be a good idea to come up with at least a basic plan for what kind of investor you’ll be. Would you prefer to buy a handful of stocks and hold them for the long haul without worrying too much about ups and downs in the meantime? Or maybe you want to invest in stocks that pay a healthy dividend, potentially increasing your overall return. Many investors prefer to buy the stocks of companies they feel are poised for big long-term growth. This may result in lower returns initially but this risk implies a bigger reward down the line.

Step 4: Fund your account and make some trades.

All you need to do now is make a deposit or transfer an existing trading account to your newly created one. Once your account is funded, you can search the stocks you are looking for and put in an order to buy.

How can I choose the right stock trading app for me?

With so many platforms and online trading products available, it’s important that you compare your options to find the right platform for your situation:

• Compare the selection. Think about the features, assets and instruments to find a platform to meet your needs.
• Compare commission fees. Some brokers charge extra for orders or specialized investment products. High-value trades are often charged as a percentage of the total trade value, rather than a fixed fee.
• Availability of advice and research options. Online brokers usually offer market news and updates and other research tools that will let you investigate the trading history of individual stocks.
• Integration with bank accounts. Some services let you transfer money easily from your trading account to a savings account. Others offer linked debit cards to use with your accounts.
• Integration with technology. Consider how each platform integrates with your mobile device, bank account, apps and other technology.

Types of online stock trading

Online trading is a broad term that refers to different ways to buy and sell assets online. Here are some of the more popular methods of share dealing:

• Stock Trading

  Traders buy and sell company shares through stock markets, which provide continuous updates on the prices of those shares. The value of a company’s shares changes daily, so shareholders aim to buy shares when they cost less and sell when they cost more to make a profit. You can expect transaction fees for buying and selling.

  Example: Company X is trading at $5 per share on January 1st and you buy 100 shares for a total of $500. By February 1st, the shares are trading at $5.50, so you decide to sell, giving you a 50-cent return on each share for a profit of $50. This also works in the opposite direction: If the stock price was $4.50 when you decide to sell, you’d be losing 50 cents per share for a net loss of $50.

• Option trading

  Options are essentially a bet on how you think a stock will move within a set time. If you purchase a contract of 100 shares, that gives you the right, but not the obligation, to buy or sell a stock at a certain price, called the strike price, within a certain time frame. Here are two options:

  Call. If you believe the price of a stock will go up by the expiry date, you buy a call option contract. This gives you the right to buy shares at the strike price. If the share price is higher than the strike price, either buy the shares at a discount when the contract expires or buy and immediately sell the option for a profit.

  Put. If you think the price of a stock will go down by the expiry date, buy a put option contract. This gives you the right to sell the shares at the strike price. If the share price drops below the strike price, you could buy shares at market price and sell them at the strike price.

  Example: Company Y is trading at $20 per share on January 1st and you can buy a six-month options contract with a strike price of $20 and a premium of $5 per share.

  If you expect the market price of the share to reach $25 — the strike price plus premium — or higher by the expiry date, buy a call option. Since this contract gives you the right to purchase the stock at the strike price, you could either sell the contract for a profit or purchase shares at below market value.

  However, if you expect the market price of the share to drop to $15 — strike price minus premium, or below — by the expiry date, buy a put option. This contract gives you the right to sell shares at the strike price, meaning you could either sell your contract for a profit or purchase the shares at market value and sell them for more than you paid.

• Bond trading

  Bonds are issued by companies or governments to generate cash flow, finance debt, fund investments and more. Bonds have predetermined term lengths and pay interest (also called the coupon rate) at set intervals for the length of the term. Once the bond reaches maturity, it can be cashed for the principal amount.

  A bond’s value can fluctuate based on the current interest rates, so some traders buy and sell existing bonds on secondary markets. If interest rates drop, the market value of your bond will increase, whereas if they rise, the value of your bonds will drop.

  Example: Company A is looking to raise money for the development of a new product, so it issues five-year bonds with a $1,000 principal and 5% coupon rate, paid annually. If you purchase 10 bonds for a principal investment of $10,000, you’ll receive a $500 interest payment each year until the bond reaches maturity. So after five years, you would have accrued a total of $2,500 of interest on an initial investment of $10,000.

• Futures trading

  Futures are based on buying or selling stocks in the future with an agreement to buy or sell the stock. When you enter into a futures contract, you’re making an agreement to buy or sell an asset at a set price on a certain date.

• Swaps trading

  Swaps are not completed on exchanges. Instead, they are done as over the counter transactions between traders, businesses or financial institutions. Swaps are essentially a contract involving cash flows or liabilities, like loans or bonds. However, the principal amount does not actually change hands. In most cases, one cash flow is fixed, while the other is variable, often based on a benchmark interest rate, floating currency exchange rate or index price.

  Example: Company A loaned one of its distributors $1 million over five years with a variable annual interest rate of 1% + 5.25% prime rate. The company believes that the prime rate is going to decrease within the next five years, affecting its interest payments. It wants to enter into a swap on its loan. Company B believes the interest rate will rise, so it pays company A a fixed rate of 7% per year in exchange for the variable cash flow from A’s loan. Company A is happy if prime stays below 6%, whereas company B is happy if prime goes above 6%.

• Crypto trading

  Crypto, or digital currency, trading is very similar to stock trading in that it involves buying or selling assets to make a profit. Just like stocks, there are numerous cryptocurrencies out there, allowing you to pick and choose where to invest your money. Once you purchase cryptocurrency on an online exchange, you can either sell it, hold on to it, or buy other assets like stocks, other cryptocurrencies or even goods and services.

• Forwards trading

  Forwards trading is just like futures trading but with more flexibility. While futures contracts include a set number of a specific asset at a predetermined delivery date, forwards contracts allow you to customize the terms. The contract holders make an agreement to buy or sell the asset, aiming to make a profit by predicting price movements.

• Binary options trading

  Binary options are simpler versions of options contracts. They’re essentially a bet on whether the price of an asset will rise or fall, but unlike options contracts, the underlying assets are never exchanged. Instead, traders buy a call if they believe the price will rise or a pull if they think the price will fall. If the price of the asset is above the strike price at the expiration date, the holder of a call is paid a fixed return. If the price of the asset is below the strike price, the holder of a put is paid a fixed return. If the trader makes an incorrect prediction, the original investment is lost.

  Example: Company A is currently trading at $5. Predicting that the price will rise, a trader purchases a one-day call. By the next day, the price has reached $5.50. Since the trader was correct, they’ll receive a payout as discussed with the broker.

• Short selling

  This is a bet that a stock price is going to fall. Traders borrow shares and sell them, anticipating they can buy them back later to settle the loan at a lower price and pocket the difference. But if the share price rises instead, they have to buy at the higher price and take a loss.

  Example: Company X is trading at $5 per share on January 1st and you think it will go to $0. You borrow and sell 100 shares for a total of $500. By February 1st, the shares are trading at $1, so you buy 100 shares to close your position for $100, and pocket $400. This also works in the opposite direction: If the stock price rises to $10, repaying the loaned shares costs you $1,000 and you lose $500. If the stock hits $20, you lose $1,500. The most you can gain is $500, but your potential loss is unlimited.

How to pick stocks

A key part of trading online is learning how to assess individual stocks. There are many ways to evaluate stocks and pick out the good ones that are selling for a bargain. So-called value investing has been made popular by famous investors such as Warren Buffett. The idea here is to seek out stocks with good “fundamentals” like solid earnings and strong cash flows that are trading below their inherent worth.

Earnings growth

You can look at how a company’s earnings have fluctuated over time. Are earnings on an upward trajectory? How do they fluctuate during good and bad economic times?

Performance versus rivals

How do a company’s revenue and profits compare with its main competitors. Does it have any special advantages that could allow it to gain market share at the expense of its rivals?

P/E ratio

This metric shows how a company’s stock price compares with its earnings. You calculate this ratio by dividing a company’s share price by its earnings per share. This is an easy way to compare companies in the same sector and identify those that may be undervalued and thus a good buying opportunity.

Types of stocks

Corporations issue two types of stock:

Common stock: These shares represent ownership in a small piece of a company. Generally speaking, these are what most people refer to when they say they are buying stocks. You make money investing in common stocks when you sell them for more than you paid for them, or when you receive dividend payments. Depending on how much stock you own, you are entitled to vote at shareholder meetings.

Preferred stock: This is a bit different from common stock. Preferred stocks tend to have a fixed dividend that is paid out to shareholders before common stock dividends are paid. If a company enters bankruptcy, preferred stockholders are paid from the remaining assets before common stockholders.

Common online stock trading investing strategies

It’s also important to decide on an overarching investing strategy that guides what types of assets you put in your portfolio.

Index investing

This is also sometimes called passive investing. You buy a security like an ETF or mutual fund that tracks an index (for example, the TSX Composite Index). It is called passive investing because the strategy here is to buy and hold these assets for a long period of time.

Dividend investing

This strategy involves buying stocks that pay relatively high dividends. These annual payouts to investors can add to your overall returns, especially if you reinvest the dividends back into your portfolio.

Growth investing

This strategy focuses on stocks with big future growth potential. Yes, buying assets that are expected to grow is the basis for all investing. But this approach may result in volatility in the short-term in exchange for bigger gains down the road. What’s more, some stocks may never realize their potential.

Using a robo-advisor

If buying and selling stocks still seems intimidating, you could consider using a robo-advisor. Robo-advisors are algorithms that invest in a mix of stocks (and bonds) according to your risk tolerance, financial situation, and investing timeline. For the most part they are also cheaper than paying a human stock broker to pick stocks for you. This passive investing approach saves time too, as you don’t need to research what shares to buy and sell and when to do so.

Stock trading tools

Paper trading

Paper trading is a great way for beginners to get started trading stocks online in Canada. It allows you to make theoretical trades based on simulated or actual market data so that you can practice trading. It’s easy to get started:

1. Find a company or website that offers paper trading.
2. Sign up using your email and any other contact information (no bank account info is necessary).
3. Build your portfolio.
4. Monitor markets and trends.
5. Buy and sell assets, learn various instruments and explore markets.

Charting software

For more advanced traders, charting software and market research reports may improve your trading abilities. They’ll provide a more in-depth look at various markets and can help you develop trading strategies to reach your short and long-term financial goals.

1. Research different software and providers.
2. Once you’ve found the right product, visit the website to sign up.
3. Sign up by providing your personal information and any other details.
4. Link your online trading account to make trades directly from the charts.

Bottom line

Online trading platforms make it easy to invest in stocks, bonds, foreign currencies and other assets at any time, no matter where you are. Most offer multiple ways to trade, creating new opportunities to earn money and allowing you to diversify your portfolio. Once you’re ready to trade, compare your options to find a platform that suits your trading needs.

Frequently asked questions

• How do I buy stocks online without a broker?

  It’s straightforward. As mentioned above, simply visit your preferred online share trading platform and open an account. You can then buy and sell stocks online. There is no need to contact a human broker who takes your buying and selling orders. Of course, some people may still prefer this method.

• Where can I start stock trading?

  Paper trading is arguably the right way to start online trading. You’ll have access to all of the data and trading methods you need to understand how it works but won’t need to risk any of your money.

• Can anyone use online stock trading?

  Yes. As long as you have a bank account, you should be able to sign up for online trading.

• How do I buy and sell stocks?

  Once you’ve registered for an online trading account, you can navigate to your dashboard to manage your account. From there, you should be able to look up various stocks and other assets. Once you’ve found a stock you want to buy, you’ll enter the quantity and your bid price and submit your trade.

  Selling stocks is very similar — you’ll find your assets in your portfolio and should be able to select a stock to manage your shares. If you want to sell, you can enter the amount and the ask price, then submit the transaction.

• How much does online trading cost?

  Most online trading platforms will only charge fees for commission, so you won’t have to pay unless you are making trades. That said, commission prices can vary, so it’s hard to say exactly how much it will cost to trade.

• Where is the right place for beginners to learn about online stock trading in Canada?

  We have written a detailed guide for beginners that outlines how you can get started investing.

Stock trading glossary

• Portfolio

  A mixture of assets such as stocks, bonds and cash owned by an investor.

• Stock market index

  An index that measures a specific stock market and helps investors compare current and historical prices.

• Earnings per share

  A company’s profits divided by the number of shares outstanding. A measure of profitability.

• P/E ratio

  The stock price divided by the earnings per share. This ratio allows investors to compare companies in the same industry to determine if any are undervalued or overvalued.

• Dividend

  Part of a company’s earnings that is paid quarterly or yearly to those who own stock. Dividends are not guaranteed.

• Buying on margin

  This refers to borrowing money to buy stocks. The margin represents the difference between the value of securities in an investor’s account and the amount of the loan. This is a risky strategy because if the value of your investment falls you will still be on the hook for the money you borrowed.

• Initial public offering (IPO)

  This is the first time a company issues shares for sale to the public. IPOs of well-known companies tend to attract a lot of media attention.

• Exchange-traded fund (ETF)

  An ETF is a mix of stocks that tracks an index, sector, or commodity, but can be bought or sold on a stock exchange like a regular stock. An example would be an ETF that tracks the movements of the TSX Composite Index. So if the main stock market in Toronto rose 2% over the course of the month, so would the ETF.

• Mutual fund

  A diverse collection of stocks that is managed by a portfolio manager whose goal is generally to get better returns than the overall stock market. Mutual funds charge an annual fee (usually a few percentage points of the total amount invested) for this service.

• Registered account

  This refers to special investment accounts the Canadian government gives tax-deferred or even tax-exempt status. Examples include an RRSP or a TFSA.

• Non-registered account

  This refers to a regular investment account account with no preferential tax status. In Canada, this means that if you sell stocks at a profit you will have to pay taxes on the amount of your gain.

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.