How to Buy and Sell Stocks in Canada

Investing in the Canadian stock market offers a pathway for individuals to grow wealth. Stocks represent ownership stakes in publicly traded companies, providing an opportunity to participate in their growth and profitability. The market is increasingly accessible for individual investors. This guide covers buying and selling stocks, from setting up an investment account to understanding costs and tax implications.

Selecting Your Investment Account

Establishing a suitable investment account is a foundational step. Canadian residents typically choose from several account types, each with distinct tax implications and advantages.

Tax-Free Savings Accounts (TFSAs) allow investments to grow and withdrawals to be made entirely tax-free. For 2023, the annual TFSA contribution limit was $6,500, increasing to $7,000 for both 2024 and 2025. Individuals who were at least 18 years old in 2009 and have been Canadian residents could accumulate up to $102,000 in cumulative TFSA contribution room by 2025.

Registered Retirement Savings Plans (RRSPs) are designed for retirement savings, where contributions are tax-deductible, reducing taxable income in the year they are made. Investment growth within an RRSP is tax-deferred, meaning taxes are only paid upon withdrawal, typically in retirement when an individual may be in a lower tax bracket. The maximum RRSP contribution room is 18% of the previous year’s earned income, up to a government-set annual maximum of $32,490 for 2025. Any unused contribution room can be carried forward indefinitely.

Non-registered accounts, also known as taxable accounts, do not offer the same tax advantages as TFSAs or RRSPs but provide flexibility with no contribution limits. Investment income, such as interest, dividends, and capital gains, earned within these accounts is generally taxable in the year it is realized. These accounts are suitable for investors who have maximized their contributions to registered plans or prefer unrestricted access to their funds. Accounts can be opened through various financial institutions, ranging from full-service brokerages that offer advice to discount brokerages that provide self-directed trading platforms.

Funding Your Trading Account

Once an investment account has been established, the next step involves depositing funds into it to begin trading. Brokerages offer several methods for transferring money from a Canadian bank account.

Electronic Funds Transfer (EFT) or Pre-Authorized Debit (PAD) is a common method, typically taking one to three business days for funds to become available. Bill payment is another widely used option, with transfers usually completing within one to two business days. Interac e-Transfer provides a quicker way to fund an account, often processing funds within minutes or a few hours, though daily or transactional limits may apply.

Wire transfers generally offer the fastest processing times for larger sums but can incur higher fees. Depositing funds via cheque is also possible, but this method usually has the longest processing time, often taking five to ten business days. Some brokerages may also have minimum initial deposit requirements to activate a new trading account.

Researching and Choosing Investments

Choosing stocks requires careful consideration beyond simply picking a company name. Understanding a company’s business model, including its products or services, the industry it operates within, and its competitive landscape, forms a foundational part of the research process. Examining basic financial metrics can provide insights into a company’s financial health. These include its total revenue, which represents the value of goods and services sold, and its profit, indicating how much money the company retains after expenses. Understanding a company’s debt levels can also reveal its financial leverage and risk.

Investors can access information from various reliable sources to conduct their research. Company websites often provide investor relations sections with annual reports and financial statements. Reputable financial news websites and business publications frequently publish analyses. Brokerage platforms offer research tools, including analyst reports and screening functionalities, to help identify potential investments.

Building a diversified portfolio is a fundamental strategy: spread investments across different companies, industries, and asset classes to mitigate risk. Aligning stock choices with personal financial goals (e.g., long-term growth, income generation) and understanding risk tolerance are also important.

Executing Stock Trades

After selecting the stocks to invest in and funding the account, the actual process of buying or selling shares involves navigating the brokerage’s trading platform. Investors typically access the platform through a web browser or a dedicated mobile application. A search function allows users to find specific stocks by entering their ticker symbol, which is a unique abbreviation for the company’s shares.

When placing an order, different order types determine how the trade is executed. A market order instructs the brokerage to buy or sell shares immediately at the best available current market price. While offering quick execution, the final price may fluctuate, especially in volatile markets. A limit order allows an investor to specify the maximum price they are willing to pay for a purchase or the minimum price they are willing to accept for a sale. This provides price control but does not guarantee immediate execution if the market price does not reach the specified limit.

A stop-loss order is another common type, used to limit potential losses or protect gains. It becomes a market order once a stock’s price reaches a pre-determined “stop price.” For Canadian securities, some platforms may require a stop-limit order, which combines a stop price with a limit price, meaning the order converts to a limit order at the stop price. After entering order details (ticker symbol, quantity, order type), the platform prompts for review before submission.

Understanding Trading Costs and Taxation

Engaging in stock trading involves various costs and tax implications that can affect overall investment returns. Brokerages generally charge fees or commissions for each trade executed, with typical per-trade commissions ranging from approximately $4.95 to $9.95. Some platforms, however, offer commission-free trading for stocks and Exchange Traded Funds (ETFs). Additionally, Electronic Communication Network (ECN) fees may apply, which are small per-share charges, often fractions of a cent, incurred when an order “removes liquidity” from the market, such as with a market order that executes immediately.

When stocks are sold for a profit, this results in a capital gain, while a loss leads to a capital loss. In Canada, 50% of a capital gain is taxable and is added to an individual’s income, then taxed at their marginal income tax rate. For instance, if an investor realizes a $10,000 capital gain, $5,000 would be included in their taxable income.

Dividends received from Canadian corporations are also subject to taxation, but the tax treatment varies depending on whether they are classified as “eligible” or “non-eligible” dividends. Eligible dividends, typically from larger public corporations, receive more favorable tax treatment due to an enhanced dividend tax credit, reflecting that the corporation has already paid a higher rate of tax on its earnings. Non-eligible dividends, often from smaller private corporations, are taxed at a higher personal rate because the originating company paid a lower corporate tax rate. Investors must maintain accurate records of their trades for tax purposes, as brokerages issue tax slips such as the T5008 for proceeds of disposition, T5 for investment income like dividends, and T3 for income from trusts, including some ETFs and mutual funds, to aid in tax reporting.