How to trade Stocks?

Stock brokers

 

To make a trade in stock, your first step is to open an account with a stock broker, or brokerage firm. Typically, there are two types of brokerage firms: discount brokers and full-service brokers.

Discount broker charges less commissions, but does not offer investment advice. It is suitable for investors who are comfortable with making their own investment decisions.

Full-service broker charges more commissions usually based on the percentage of the trade. However, they will provide investment advice, as well as analyzed financial reports.

In general, investors are moving away from full-service broker to discount broker because of exploded growth of technology and Internet. The brokerage commissions for web-based trades have dropped from hundreds of dollars to as low as $5 per trade.

List of Canadian discount brokers:

No.
Discount Broker
Commission for Equities (online market order)
Commission for Options
Commision for Active Traders
1
Scotia Mcleod
$25.95
$25.95 + $0.80-2.80/con.
N/A
2
BMO InvestorLine
$25
$35 + $1.00-3.5/con.
$9.95 (30 trades/quarter)
3
RBC Action Direct
$28.95
$43 with 20% discount
$9.95 (30 trades/quarter)
4
TD Waterhouse
$35
$35 + $1.5-3.5/con.
$9.99 (30 trades/quarter, or $500,000 assets) )
5
CIBC Investor's Edge
$25
$28 + $1.2-2.80/con.
$395/year + $6.95/trade
6
National Bank Direct Brokerage
$28.95
$28 + $1.2-2.80/con.
N/A
7
E*Trade Canada
$19.99 flat
$19.99 + $1.75/contract
$9.99 flat (30 trades/quarter, or $50,000 assets)
8
Disnat - Desjardins
$19.95
$19.50 + $1.50/contract
$5 (10 trades/month)
9
TradeFreedom
$9.95
$9.95 + $1.25/contract
$9.95
10
eNorthern
$24
$30 + $1.5-3.5/con.
N/A

 

Undertand stock quote

Stock is quoted by Bid and Ask price on the stock exchange.
Bid price (buying price) is the highest price at which a buyer is willing to pay for a stock.
Ask price (selling price) is the lowest price at which a seller is willing to sell his stock.

Types of order
Day order - Valid only for the day the order was placed.

Market order - Buy or sell the stocks at the best available price, usually at the current market price. Unless specified otherwise, broker will always treat your order as a market order. Market order can always guarantee your order will be executed, and broker usually charge less for market order.

Limit order - Buy or sell the stock at a specific price at which the transaction may be executed. Limited order gives you the control of price at which your order will be filled. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. However, limit order may never be filled because the market price may quickly surpass your limit before your order can be filled.

Stop order - Buy or sell a stock once the price of stock reaches a specified price, known as the stop price. When the stock price is reached, the stop order will become a market order. Broker usually charge higher commision for this type of order.

Stop buy/loss orders - A stop buy order is used to protect against losses in a short sale. A stop loss order is used to protect a paper profit, or to limit a potential loss on shares already owned. The advantage of a stop order is you don't have to monitor how a stock is performing on a daily basis. The disadvantage is that the stop price could be activated by a short-term fluctuation in a stock's price, and as a result, you may forced to sell or buy the stock at the undesirable level.

Stop-limit order - A combination of stop order and limit order. Once the stop price is reached, the stop-limit order becomes a limit order to buy or to sell at a specified price. However, a stop-limit order may never be filled if the stock's price never reaches the specified limit price. This may happen especially in fast-moving markets where prices fluctuate wildly.

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