How to Buy Stocks in Canada Without a Broker: 2 Approaches (2022)

You’ve come up with a portfolio of stocks, after careful due diligence, and would like to begin investing your money. Although advisors are commonly used for financial planning and investment management, more and more Canadians are deciding to take care of their own investments.

Back in 2021, about three million Canadians were planning to stop working with their advisor. Substantial fees charged by investment and financial advisors are likely one of the main reasons.

If you are looking to avoid paying a broker and want to buy stocks, there are two approaches that you can take in Canada:

  • Buying stocks through a discount brokerage
  • Having stocks purchased for you through a Robo-advisor

We’ll cover how to buy stocks in Canada without a broker below.

Approach 1: Buying Stocks through a Discount Brokerage

Using a discount brokerage gives you the most control and flexibility with regard to your investments. It is also the only approach to buying stocks that will save you from paying an advisory fee or MER.

The four steps for buying stocks through a discount brokerage are:

  1. Research which stocks you would like to purchase
  2. Open an account with a Canadian discount brokerage
  3. Purchase your stocks
  4. Monitor your investments

Step 1 – Researching Which Stocks to Purchase

Step 1 – Researching Which Stocks to Purchase

Before making a decision to purchase any stock or stocks, you must first determine if stocks are an appropriate investment for you.

Stocks are typically classified as medium-risk investments by most brokerages in Canada. Since they are riskier than bonds, they can drop significantly during periods of market volatility.

Within the stock universe, riskiness can vary. A small technology company’s stock is likely to be riskier than the stock of a major bank.

It’s important to do careful due diligence before buying any investment. Reading about a hot stock online is likely not the best way to pick a stock for your portfolio.

Portfolio managers and research analysts typically do a lot of due diligence by analyzing a company’s financial statements before recommending a stock.

For the stocks that you are looking to purchase, make sure that you make a list that includes both the stocks’ tickers as well as the exchanges that they trade on.

Once you have done your research, it’s time to open up your discount brokerage account.

Step 2 – Opening an Account with a Canadian Discount Brokerage

Opening an Account with a Canadian Discount Brokerage

There are a lot of options in Canada when it comes to discount brokerages. If you are looking for inexpensive options, we recommend checking out Questrade or Wealthsimple.

Experienced investors may also want to consider Interactive Brokers.

Discount brokerages are also offered through the big Canadian banks, where trading fees are generally higher. 

If you are looking to purchase US stocks, you will need to make sure that the brokerage supports US dollar accounts. US stock purchases have to be made on the US side of your accounts and in US dollars.

Stocks can be purchased in many different types of accounts, almost all of which can be opened at a discount brokerage. Some examples include:

  • Tax-free Savings Account
  • Non-registered Cash Account
  • Non-registered Margin Account
  • RRSP
  • Corporate Account

The opening of an account typically requires a lot of online forms or paperwork to be completed. Make sure to have a government-issued ID handy.

Once your account is opened, it is time to finally buy your stocks.

Step 3 – Purchase your Stocks

Purchase your Stocks

Now that your account is open and funded, it’s time to add stocks to your account. There are two main ways to place buy orders with most discount brokerages: limit orders and market orders.

Market Orders

The most basic type of order that most people are familiar with is the market order. The market order is executed immediately once you have inputted your stock information and clicked buy. Market orders have a large drawback: bid-ask spreads.

A stock’s bid-ask spread is what buyers and sellers are willing to sell at. Each price has a specific amount of supply or demand within a stock exchange’s book. Smaller stocks and more illiquid stocks tend to have a wider bid-ask spread.

When placing a market order, you have control of when a trade is executed, but not over what price it is executed at.

Limit Orders

Limit orders are the opposite of market orders. When you place a limit order, you can control what price to buy a stock at, but not when the stock will actually be bought.

Limit orders are typically open until your shares are entirely purchased or a specific length of time has passed.

Your limit order can be placed at any price. If place a limit order to buy a stock for more than it is currently trading at, you will likely be filled immediately at the lowest possible price.

Alternatively, if you place a limit order to buy a stock at a price below its current market value, you will have to wait until the stock price reaches or drops below your inputted price.

We strongly recommend using limit orders early on in your investing journey. Placing a limit order around the current market price will allow you to know exactly how much you will be investing in each stock.

Keep in mind that limit orders can sometimes only get partially filled, depending on how a stock’s price moves.

Most discount brokerages are fairly intuitive in terms of placing your stock purchase order. Once all of your stocks are purchased, it’s time for the last step.

Step 4 – Monitor your Investments

Monitor your Investments

Monitoring your stocks over time is one of the most critical steps for investment success. Stock prices can be volatile, especially if market conditions are either extremely good or extremely poor.

Publicly-traded companies can also undergo several events which affect their stock price. Some examples include:

  • Changing, offering, or removing a dividend
  • Starting a share repurchase program
  • Doing a stock split or reverse stock split
  • Declaring bankruptcy

As an investor grows older, their risk tolerance generally decreases. An investor’s goals and objectives can also change over time. Be mindful of any lifestyle changes and adjust your stock portfolio accordingly.

Approach 2: Buying Stocks through a Robo-advisor

Buying Stocks through a Robo-advisor

An alternative to buying stocks yourself through a discount brokerage account is to have stocks purchased for you through a robo-advisor.

Investing through a robo-advisor is becoming more and more popular. Robo-advising is a low-cost alternative to using an investment advisor or portfolio manager. Questrade offers Questwealth, and Wealthsimple offers Wealthsimple Invest.

When robo-advisory platforms put together a portfolio for you, you can get stock exposure directly or through a stock ETF (indirectly). Their investment selection is usually based on your answers to their questionnaires.

Be mindful of the pros and cons of robo-advising.

How Can a Beginner Buy Stocks in Canada?

How Can a Beginner Buy Stocks in Canada?

 As an investment beginner, it is almost impossible to construct a well-diversified portfolio by selecting your own stocks.

A well-built portfolio is properly diversified across:

  • Stocks within a sector
  • Sectors within an economy
  • Geographical regions
  • Asset Classes 

Most investment beginners lack the investment experience and knowledge to construct a great portfolio. There are also additional intricacies such as trading, rebalancing, and tax planning which complicate matters further.

We strongly advocate that you begin investing through the purchase of several ETFs as opposed to outright stocks. Investing through a Robo-advisor is also a great way to begin investing.

Our guide above does a great job of outlining how to buy stocks without a broker if you are still adamant about buying stocks as an investment beginner.

Can I Directly Invest in the Stock Market without a Broker?

Can I Directly Invest in the Stock Market without a Broker?

When people discuss the stock market, they are typically referring to a stock market index either here in Canada or in the US.

Indices like the S&P 500 or the S&P/TSX 60 reflect the performance of a basket of stocks. It is critical to understand that you can’t invest in an index directly.

If you are looking to replicate the performance of a stock market index, this can be done through index ETFs.

Index ETFs are usually passively-managed, low-cost ETFs that aim to replicate the performance of indices like the S&P 500. A popular index like the S&P 500 will likely have multiple index ETFs available to buy that track its performance.

Conclusion

If you’ve decided against using a broker and want to manage your own investments, there are two main ways to buy stocks in Canada.

Purchasing stocks through a discount brokerage will give you full control over your portfolio and trading.

Using a robo-advisor will allow you to get stock exposure, typically at a fraction of a full-service broker’s advisory fee.

It’s critical that you perform great due diligence on any stocks before purchasing them in your accounts. If you have decided to select and manage your own investments, using a stock screener can help immensely with stock research.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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