How to Start Trading Stocks in Canada

Stock trading involves buying and selling shares of publicly traded companies with the goal of generating profits. This activity allows individuals to participate directly in the financial markets and potentially grow their wealth by owning a small part of various businesses. Understanding how to navigate this landscape is an important step for those looking to engage with the stock market. This guide provides practical information for individuals in Canada interested in beginning their stock trading journey.

Choosing a Brokerage and Account

Starting your stock trading journey in Canada requires selecting an online brokerage firm. When choosing a brokerage, several factors to consider include its reputation, the ease of use of its trading platform, the range of investment products offered, customer support, and educational resources. Discount brokers, which offer lower fees and self-directed trading, are often a practical choice for new traders.

After selecting a brokerage, choose the appropriate account type. In Canada, two primary categories are registered and non-registered accounts. Registered accounts, such as the Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP), offer tax advantages.

Funds in a TFSA grow tax-free, and withdrawals are also tax-free, with the 2025 annual contribution limit at $7,000. An RRSP allows for tax-deferred growth, with taxes paid only upon withdrawal, and contributions are tax-deductible, with the 2025 maximum contribution limit being 18% of your earned income from the previous year, up to $32,490.

Non-registered accounts, also known as taxable accounts, do not offer specific tax benefits like TFSAs or RRSPs, but they provide flexibility with no contribution limits. These accounts suit investors who have maximized registered contributions or prefer unrestricted access to funds. Non-registered accounts typically include cash accounts, where you trade with your own funds, and margin accounts, which allow trading with borrowed funds.

Opening a brokerage account involves a straightforward online application. You will need to provide personal identification, such as a valid government-issued ID (e.g., driver’s license or passport), your Social Insurance Number (SIN), and employment details. Brokerages also require banking information to link your account for funding. Approval can range from a few minutes for online applications to several business days, depending on the firm.

Funding Your Account and Understanding Costs

Once a brokerage account is established, deposit funds. Common funding methods include electronic funds transfers (EFTs) from your bank account, bill payments, and wire transfers for larger sums. The time it takes for funds to become available varies, with electronic transfers often being the quickest.

Understanding the costs associated with stock trading is important for managing investment returns. Commissions are a primary cost, charged per trade for both buying and selling stocks. While some platforms offer commission-free trading for certain assets, many still impose fees, which can range from a few dollars to higher amounts depending on the brokerage and trade volume.

Beyond commissions, other fees can impact your overall trading expenses. Account maintenance fees, which are annual or quarterly charges, might apply, though many brokerages waive these if a minimum account balance is maintained or a certain number of trades are executed. When trading stocks listed on foreign exchanges, such as U.S. stocks, currency conversion fees will apply as funds need to be exchanged from Canadian to U.S. dollars. Some brokerages might have minimum deposit requirements to open or maintain an account; verify these thresholds before funding.

Placing Stock Trades

With your brokerage account funded, you can place stock trades through the online trading platform. Online trading platforms feature a user-friendly interface that allows you to search for specific stock symbols, view real-time market data, and access an order entry screen. Familiarity with the platform’s layout and functionalities is important for efficient trading.

A market order instructs the brokerage to buy or sell a stock immediately at the best available current price. While ensuring quick execution, the final price might differ slightly from what was seen at the time of placing the order, especially in volatile markets. A limit order allows you to specify a maximum price you are willing to pay for a buy order or a minimum price you are willing to accept for a sell order. This provides control over the execution price, though there is no guarantee the order will be filled if the market price does not reach your specified limit.

A stop order, particularly a stop-loss order, is a risk management tool designed to limit potential losses. It instructs the brokerage to convert to a market order once a specified stop price is reached. For instance, a sell stop order placed below the current market price will trigger a market sell if the stock drops to that price, helping to protect against further declines.

To place a buy order:
Locate the stock using its ticker symbol on the platform’s search bar.
Specify the number of shares you wish to purchase.
Select your desired order type (market or limit).
Review all order details, including the stock, quantity, and price.
Confirm the trade.

Selling mirrors this process: select the stock, specify quantity, choose order type, review, and confirm. After placing an order, you can monitor its status—whether pending, filled, or cancelled—through your account summary or order history section.

Tax Implications in Canada

Profits from selling stocks are classified as capital gains. A capital gain occurs when an investment is sold for more than its adjusted cost base (ACB), which includes the purchase price plus any associated costs like commissions. Only 50% of a capital gain is considered taxable income in Canada.

For example, if you realize a $10,000 capital gain, only $5,000 will be added to your taxable income for the year. This taxable portion is then taxed at your personal marginal tax rate. Capital gains and losses are reported on Schedule 3 of your T1 Income Tax and Benefit Return.

Dividend income, distributed by companies to shareholders, has specific tax treatments. Dividends from Canadian corporations are categorized as either “eligible” or “non-eligible” dividends, depending on how the corporation’s income was taxed. Eligible dividends, from larger public corporations, receive preferential tax treatment due to a higher dividend tax credit, reflecting the higher corporate taxes already paid. Non-eligible dividends, from Canadian-controlled private corporations (small businesses), are taxed less favourably because the underlying corporate income was taxed at a lower rate. Dividends received from foreign companies are taxed at your full marginal rate, and some countries may impose a withholding tax at the source.

The type of account holding investments impacts their tax treatment. In contrast, capital gains and dividends earned in non-registered accounts are taxable in the year they are realized or received. Accurately tracking your Adjusted Cost Base (ACB) for each security helps ensure correct calculation of capital gains or losses for tax reporting, especially when buying the same stock multiple times.