Our Essential Guide to Stocks in 2024)
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A study conducted in 2021 showed that out of 16 developed countries in North America, Europe, Africa and Oceania, Canada ranks 6th with 39% of the population being invested in the stock market. Out of that 39%, 17% said that they have less than $2,000 invested. A whopping 41% of the population aren’t invested at all and the final 20% said that they were going to invest before the end of 2021.
If you are part of the statistic that has little to no money in the stock market, you probably already know that you should be investing. But what do you actually know about the stock market?
This article dives into what the stock market is and how it works. It also covers how you can invest in the stock market, and some general information relating to the Canadian stock market.
What is the stock market?
The stock market is an umbrella term used to describe a network of public stock exchanges where investors can either buy or sell shares in publicly listed companies.
While often mistaken for the stock exchange, it is important to know that the stock market is not a single entity. Instead, it consists of multiple stock exchanges around the world. This means that if you are invested in the stock market, you are probably investing through one, or several, stock exchanges.
Commonly, stock markets are referred to by geographical location such as the US stock market or the Canadian stock market. In the former, one would be talking about shares of companies listed on stock exchanges specifically in the US, while the latter encompasses shares of companies registered on Canadian stock exchanges. The total stock market on the other hand usually refers to the global stock market.
How does the stock market work?
The stock market works by facilitating the exchange of shares between investors through secure and regulated environments called stock exchanges. The stock market also comprises two different types of markets: the primary and secondary stock markets.
When a company lists their shares on a stock exchange for the first time they do so through a process called an initial public offering (IPO). The IPO is where a company allows investors to buy shares within the business for the first time in order to raise money to grow the company. This is known as the primary market.
Most investing in the stock market, however, takes place on the secondary market. This secondary stock market is where individual investors buy and sell shares of companies that already exist and that are already owned. Stock exchanges around the world subsequently track the supply and demand for the stocks and it is this supply and demand which determines the prices of shares.
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Most companies only have one IPO but it is possible for a company to go public more than once and list its shares on more than one exchange. This is known as dual listing. The Chinese company Alibaba (NYSE: BABA) (HKG: 9988) went public on the New York Stock Exchange (NYSE) in 2014, and then again on the Stock Exchange of Hong Kong in 2019.
How do I invest in the stock market?
You no longer have to be a big investor to buy stocks as low-cost brokerages have allowed anyone to start investing with minimal fees and small amounts. In fact, all you need to start investing in the stock market in Canada is the following.
Open an online brokerage account
In order to invest in the stock market in Canada, you will need an online brokerage account and access to a trading platform that allows you to buy and sell shares on stock exchanges. In recent years low-cost online brokerages have facilitated this access for millions of DIY retail investors, but you can also invest in the stock market through high-street banks.
A few examples include:
- Qtrade
- Questrade
- Wealthsimple Trade
- Desjardins
- Interactive Brokers
- National Bank Direct Brokerage
- RBC Direct Investing
- Scotia iTRADE
- TD Direct Investing
Mostonline brokerages have robust mobile platforms. See our picks of the best stock trading apps.
Choose an investment account
Canadian investors have the option to invest through government-registered accounts that come with financial incentives, or non-registered brokerage accounts which have more flexibility.
If you are investing for the long term it is worth considering a registered account due to its various structures and financial benefits. Some examples are:
- Tax-free savings account (TFSA)
- Registered retirement savings plan (RRSP)
- Registered education savings plan (RESP)
- Registered retirement income funds (RRIF)
- Registered disability savings plan (RDSP)
- Locked-in retirement account (LIRA)
- Life income fund (LIF)
- Locked-in retirement income fund (LRIF)
Want to buy stocks? Qtrade makes it easy.
Decide on an investment strategy
If you want to be a hands-on trader you can invest in specific stocks on the stock market. In order to do so, you should research each company you are considering extensively and have specific investing rules to follow. Alternatively, you can invest through ETFs or mutual funds to lower your risk and invest with a more hands-off approach.
Good to know
If you want to know more about online brokerages you can compare Canada’s best brokerages using our online brokerage comparison guide.
Why should I invest in the stock market?
Everyone should invest in the stock market to help their money and wealth grow over time. In addition to growth, investing in the stock market helps your money stay ahead of inflation which otherwise would depreciate your money over time.
However, while the stock market is an impressive tool to build wealth, everyone should also learn about the pros and cons of investing in stocks.
Pros of investing in the stock market
- Passively increase your wealth over the long term
- It can be easy and anyone can invest
- You can start from as little as a few hundred dollars
- Investing curbs the impact of inflation
- Investing can help you save on taxes
Cons of investing in the stock market
- Short-term investing can be risky
- Long-term investing may not guarantee high returns
- DIY investors can lose more than they can afford
- Investing takes time
- The stock market can be erratic and sometimes does not make sense
What is bid and ask in the stock market?
The bid and the ask price in the stock market are the maximum price someone wants to pay for a certain share and the minimum price someone is willing to sell a share for, respectively. Bid and ask prices are determined by supply and demand which are tracked by stock exchanges during opening hours.
Where there is a high demand for shares of a fund, or specific stocks, there will be more buyers than sellers. As a result, this may push the price of shares up. Conversely, if more investors are selling their shares than there are buyers, then the price will likely fall.
What stock exchanges can I trade on from Canada?
The first and biggest stock exchange in Canada is the Toronto Stock Exchange (TSX) which opened in 1861 and is located in Toronto, Canada. The Toronto Stock Exchange (TSX) is one of the largest in the world and the third-largest stock exchange in North America, after the New York Stock Exchange (NYSE) and the NASDAQ, which are both found in the US.
With over 2,200 companies listed on the Toronto Stock Exchange, Canadians will most likely trade on the TSX. However, with an online brokerage account such as CIBC Investor’s Edge, Desjardins Online Banking, Questrade or TD Direct Investing, investors may also have access to stock exchanges around the world.
So in theory and depending on the brokerage firm and platform you use, investors from Canada can trade on the New York Stock Exchange (NYSE), Toronto Stock Exchange (TSX), London Stock Exchange (LSE), Shanghai Stock Exchange (SSE), the Tokyo Stock Exchange (TSE) and more.
Good to know
Not all brokerage accounts give access to all stock exchanges so it is important to research which stock exchanges a specific brokerage will provide access to before opening an account.
When does the stock market open in Canada?
The Canadian stock market and the Toronto Stock Exchange (TSX) are open Monday to Friday from 9:30 am to 4:00 pm ET, with the exception of national holidays. In addition to these regular opening hours, the Toronto Stock Exchange (TSX) also has after-trading hours between 4:15 pm to 5:00 pm ET.
The extended trading hours allow some investors to trade outside of regular trading hours. However, as these trading sessions aren’t available to all investors they may have different trading rules and come with higher risk due to limited liquidity, higher volatility and increased price uncertainty.
What is the S&P/TSX Composite Index?
The S&P/TSX Composite Index is an index which tracks the largest companies listed on the Toronto Stock Exchange (TSX). On average it consists of 250 companies representing approximately 95% of the Canadian stock market.
Country-specific indexes such as the S&P/TSX Composite Index are used to gauge the performance of a country’s general economy by representing trends and market sentiment.
When investing in the Canadian stock market, investors are able to buy or sell specific stocks listed on the Toronto Stock Exchange (TSX). However, successfully investing in specific companies requires a lot of time and financial knowledge and comes with great risk.
If an investor wishes to invest in Canadian stocks without having to research specific companies, they are able to invest in an index tracker which mimics specific indexes. So if an investor wishes to invest in the top 250 companies listed on the Toronto Stock Exchange every single company listed on the Toronto Stock Exchange, they could invest in an S&P/TSX Composite Index tracker such as the iShares Core S&P/TSX Capped Composite Index ETF created by BlackRock.
What is a dividend stock?
A dividend stock is a share in a publicly-traded company that distributes company profits to its shareholders on a regular basis. Usually paid quarterly, these profits are distributed in the form of cash payments known as dividends and can vary greatly between companies.
The dividend itself is often referred to as the dividend yield which represents the ratio of a company’s annual dividend compared to its current share price and is represented as a percentage.
Commonly, high-paying dividend stocks are offered by well-established, profitable companies in order to reward investors and keep them invested in the company. The dividend is also an excellent incentive for investors as they know they will receive a recurring income regardless of what is happening with the stock’s share price.
List of stock exchanges in Canada:
The Toronto Stock Exchange (TSX) is undoubtedly the largest stock exchange in Canada, but it is not the only one. In fact, four other stock exchanges that exist in Canada rarely get a mention.
The reason why several different stock exchanges exist within a country is the same reason as in any industry: variation. When one stock exchange grows too big, companies who wish to go public through an IPO may opt to do so on another smaller, or more dedicated exchange. By choosing a stock exchange aligned to their size or industry sector, the company undertaking the IPO may get better recognition which may help them raise more investment capital.
| Stock Exchange | Abbreviation | Location | Speciality |
|---|---|---|---|
| Toronto Stock Exchange | TSX | Toronto, Ontario Canada | Established companies valued at more than $50M |
| Candian Securities Exchange | CSE | Toronto, Ontario, Canada | Focused on small and micro-cap companies, as well as emerging companies in Canada. |
| TSX Venture Exchange | TSXV | Calgary, Alberta, Canada | Early-stage companies are valued between $500,000 and $20M. |
| Montreal Exchange | MX | Montreal, Quebec, Canada | Derivatives Exchange |
| NEO Stock Exchange | NEO | Toronto, Ontario, Canada | Focus on providing fairness, transparency and a more efficient public listing service for companies. |
You can start trading on these and other markets in minutes.
Want to buy stocks? Qtrade makes it easy.
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