Step 1 – Open Account
Ready to buy ETFs? Great! First you’ll need a brokerage account. I recommend Questrade. Any brokerage will do but a low cost online brokerage is going to be the easiest and cheapest for most people. Go ahead and open that account now and come back when you’re done.
Step 2 – Fund Account
Your account is open now? Good. Time to deposit some money, or transfer your account from another financial institution. Did you know that you can have multiple TFSAs and RRSPs? As long as you don’t go over your total contribution limit between all your accounts you’re good. If you’re transferring your registered account (i.e. TFSA, RRSP, RESP etc.) make sure you first contact your NEW brokerage(like Questrade). They will send a form to your old brokerage to transfer your funds.
DO NOT withdraw money from your RRSP to your bank account and redeposit it. If you do you’ll pay taxes and early withdrawal fees. If you withdraw money from your TFSA you’ll have to wait till next year to get that contribution room back (i.e. maxed out TFSA, withdraw $50k on January 2nd 2019, you can’t redeposit that till January 1st 2020 and it just sits). Not as bad as the RRSP fees and taxes but still a problem for you money bags with your maxed out TFSAs.
Does your account have money yet? No? Don’t worry it takes a few days for a deposit and a few weeks for a transfer. Come back when you’re ready.
Step 3 – Invest
Ok your account is finally funded! You’re ready to buy! But wow this interface is a lot more confusing than you thought….
WHAT YOU NEED TO KNOW
Let’s use the Questrade interface for an explanation. When you use a computer (as opposed to the app) you’ll first see your account. Lot’s of info but not what you need right now. Click on the green TRADE button on the top right.
You’re in the trading interface now. DON’T PANIC. You don’t need to know 90% of what’s here. The trading part is very straight forward. Let’s go through an example trade.
First you need to know how much money you have available for trading. That’s what the balance tab is for. Your balance tells you how much cash is available for trades. If you just opened your account it should reflect how much you deposited or transferred. In my example below I have $10,000 in cash and $300 in stocks, yours will probably have $0 under “Market Value” which just means you don’t own anything right now. Don’t worry about the other things I’ll explain them later.
Next you’ll search for the ETF you want using the “Symbol Lookup” on the top left, make sure it’s set to STK and not OPT. Let’s look at VGRO, type VGRO.TO into the search (the .TO means it’s on the Toronto stock exchange). Whoa that’s a lot of information! Why didn’t anyone tell you about this? Since when do stocks have two different prices???
Don’t freak out.
The only number you really need to pay attention to is ASK. The ask price is the lowest price that you can buy the ETF at. It will change throughout the day. Speaking of which, you can only buy and sell on the stock market during trading hours. Yep. The Toronto stock exchange is only available Monday to Friday, 9:30am to 4:00pm EST. And it takes stat holidays off. Trust me it’s a relief that you won’t have to worry about making trades in the evening or weekend.
Click the green BUY/SELL box at the upper right and VGRO will populate in the Order Entry section on the right. You’ll need to know exactly how many shares to buy based on how much you want to invest. Divide your cash investment by the ASK price to find out. (e.g. $5000 investment – divided by $25.69/share = 193.05 shares —–> Put 193 in for Quantity.)
Order Type – Set the transaction type to MARKET. A market order will buy shares at the current market price, which is the ASK price. This can be risky for smaller stocks because a large purchase can actually change the stock price. The first few shares might cost $1 but subsequent shares might be $1.50 or $2 and before you know it you only got 50 shares when you were expecting 75. Don’t worry though, large ETFs like VGRO will need orders of $100,000+ to change the price so you should be fine.
Duration – Leave the duration to DAY. If the order doesn’t go through for some reason (more on that later) it will cancel at the end of the day.
Account – Make sure you’re on the right account. If you have multiple accounts with Questrade they’ll be consolidated here (i.e. both your RRSP and TFSA would be selectable if both are with Questrade). You don’t want unintentionally to buy something in the wrong account.
What’s this popup? It’s your order confirmation. You’ll either get a yellow confirmation, indicating you don’t have enough money to make the purchase, or a green confirmation indicating you’re good to go. Both examples are shown below. My account only has $26 right now so I only have enough to buy a single share.
Double check everything. Especially the bolded number for TRADE VALUE and make sure it’s about how much you want to invest. In my yellow example above it’s $4998.70, which is just shy of the $5000 I was planning on investing.
Commission – Ok you found out Questrade’s dirty secret. There’s no such thing as zero commission ETFs. Well, it’s a partial truth. Questrade won’t charge you, but the TSX will. Those pennies are ECN fees that everyone has to pay and there’s no way around them that I know of. But it’s less than pennies on the dollar, it’s pennies on thousands of dollars. Don’t worry about them too much. You can afford the 68 cents.
Keep in mind you’ll be paying commission fees if you decide to buy actual individual stocks, or if you decide to sell anything. But Questrade commissions are pretty low. I’ve only once paid more than $5. And most of the big banks will charge $10-$20 per trade.
Change in buying power – The “Change in buying power” should be the trade value plus commissions (for those of you who never took accounting, numbers in brackets are negative). It represents the amount of cash that’s about to leave your account and be replaced by ETFs or stocks. If you sell something this will represent how much cash you’ll get from the trade.
Maintenance excess – Don’t worry about maintenance excess unless you have a margin account. If you have a TFSA or RRSP it’s not a margin account. Forget I even brought it up I’m not getting into it here. It should always match “Change in buying power”
New buying power – Your “New buying power” is pretty straight forward, it’s how much cash you’ll have after this trade. Questrade won’t let you go negative. In my 1-stock green example above you’ll see that I’ll have $0.56 left over after this trade.
If everything looks good, especially the bolded TRADE VALE, press the green SEND ORDER button.
And that’s it! You just bought your first investment all by yourself! That wasn’t so difficult now was it? If the trade was successful it will show up in the “Executions” tab and your VGRO shares will appear in the “Positions” tab. Now you can sit back and wait 30 years while VGRO soars!
SOME THINGS YOU PROBABLY SHOULD KNOW
LIMIT ORDERS – Now I know I said that a market order is fine if it’s less than $100,000, but if you can handle it I’d recommend using a LIMIT order when making purchases over $5000, just in case. A limit order puts a cap on the maximum price you’re willing to pay. It’s a simple protection against uncontrolled price fluctuations.
To place a limit order all you need to do is enter the maximum price (AKA limit price) that you’re willing to pay. The rest of the order is the same as using a MARKET order type:
Disclaimer – The problem I have with limit orders is when the stock price is rapidly going up throughout the day. If the stock is $26, and I make a limit of $26.10, but then twiddle my thumbs for 15 minutes, the stock price might have risen above $26.10 before I submit the order. As a result the order won’t execute and I’ll have to raise the limit higher in order to actually make the trade. Thus I just overpaid compared to if I had used a market order. Hence why I suggest most people just use market orders, or if you’re using a limit, set the limit a reasonable amount higher than the current ASK price.
DIVIDENDS – Most ETFs (including VGRO) have quarterly dividends, meaning every three months you’ll get a small amount of cash deposited directly to your brokerage account. It’s no problem, you can manually buy more shares or you can sign up for a Dividend Reinvestment Plan(DRIP). The DRIP will automatically buy more shares of the same stock with the dividends that you earn. Just keep in mind that the cash remainder will be deposited as cash to your account (i.e. you get $100 in dividends but the stock is $49/share – they’ll buy you two more shares and you’ll get $2 deposited to your account). Link to Questrade Drip form. Note: Questrade will not charge commission for shares bought through DRIP, and if you buy any different ETFs or stock you’ll need to send in the form again to have them enrolled.
TRADING HOURS – As I mentioned above, you can only buy and sell during trading hours, which, for the TSX is Monday to Friday, 9:30am to 4:00pm EST excluding stat holidays.
USD – Questrade offers trading in USD. With USD you can buy and sell on the American exchanges like the New York Stock Exchange or NASDAQ. Definitely something to consider as lots of American ETFs are slightly better than Canadian ones (VTI – hold the entire stock market for a MER of 0.03%). Some notes about using USD:
- If you deposit USD into a registered account the brokerage will report the equivalent amount in CAD (based on daily exchange rates) to the CRA. (i.e. deposit $10,000 USD it will show up on your taxes as $13,400 if the current exchange is 1:1.34)
- Questrade will exchange CAD to USD but will charge a 2% fee (i.e. exchange $10,000 CAD they charge $200 and you get equivalent of $9,800 in USD)
I know a lot of you are intimidated by the prospect of doing your own trades. Hopefully this article made that prospect a little less intimidating. For the truly lazy you won’t even need to look at your account more than once per month when you make your monthly contribution and purchase (you are doing this right???). It may seem stressful but just remember how much you could save by investing yourself.
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