A lot of interest in buying and selling stocks has arisen among my friends due to the tanking economy as a result of the pandemic. Now that many stocks are at ridiculous lows, it’s a perfect time to use your disposable income and start investing!
Before you continue reading, I just wanted to add a disclaimer. Please trade responsibly. Looking at your gains and losses on a daily basis can be stressful. When I first started off, any sudden changes in the price would cause me to quickly sell off my securities. This is how you lose money. My advice to you is treat the money you invest as you would GICs or bonds: hold them for the long run. Take a look at the following chart for $SPY.
If you had held $10,000 worth of $SPY before the 2008 market crash and panic sold it during the crisis, you would have undoubtedly lost money. If you instead held that stock until today, that $10,000 would be worth between $20,000 – $30,000, even after the damage that this pandemic has done on the market. While short-term changes are difficult to time, in the long run productivity and efficiency increase as a result of new innovations or technology. As a consequence, the overall economy improves. Just remember this and you’ll be golden.
Trading stocks first requires an account with a brokerage. While many banks do offer their own accounts, the commissions that banks take off of each trade is typically much higher than brokerages such as Questrade (disclaimer: I use Questrade as my brokerage). In order to start trading stocks, first register an account with the brokerage. Typically, you need starting capital of about $1000 to open an account with one. If you can’t spare the minimum amount to open an account, I’d strongly advise against trading stocks.
If you’re interested in U.S. securities, make sure to either deposit USD into your account or convert your money into USD through your brokerage. Brokerages usually take a commission while exchanging currency, so do take note of it. For example, Questrade takes 1%. If you are planning to exchange a larger sum of money (such as $10,000+), consider using a strategy such as Norbert’s gambit to save money on exchange.
Trading stocks requires less explanation. Look for the stocks that you want to buy and place an order. The one thing that you ought to watch out for are market orders. Prices rapidly fluctuate for individual stocks. A market order is simply a request to get an order filled at the current market price. Instead, limit orders require that orders are filled at a price up to (or down to) a certain limit. When purchasing stocks, limit orders specify that the stocks should be purchased at the price of at most $X per unit, and when selling stocks, they specify that the stocks should be sold at the price of at least $X per unit.
While I can’t recommend individual stocks to buy, one recommendation I can make is to take a look at Exchange-Traded Funds (ETFs). ETFs are similar to mutual funds in that they don’t represent a single underlying stock. Instead, they represent a set of underlying stocks, commodities, or bonds. Many, such as $SPY, track against an index. Even if individual companies within an index fold and declare bankruptcy, the index as a whole may be generally unaffected. Having ETFs comprising a vast portion of your investments reduces risk within your portfolio compared to picking individual stocks.
Congratulations, you now know how to buy and sell stocks. I hope that this serves as a kind introduction and helps show how simple it is to buy stocks. If I’m feeling it, I’ll also write a guide on how to profit despite trading in a volatile market or another general follow-up to this guide.
If you’re a Canadian, definitely do consider opening up a Tax-Free Savings Account (TFSA). Typically, half of the gains you get on selling stock counts against your income. However, gains made in a TFSA are not. The only downside is that there is a limit to how much you can contribute to your TFSA based on the year you were born. Nonetheless, it’s a great way to start investing. I opened my TFSA up in 2017 after completing my second co-op term and have had significant gains since.
Anyways, the best of luck to your investments. Let me know if there are any interesting opportunities that I should pursue ^_^
If you’re going to use Questrade, consider using my QPass code (485607830418406). When you join, both of us get around $25 extra from Questrade. The more money you put into your account initially, the more money we get!