Ticker symbols and order types: What to know before you buy a stock
If you’re wanting to take charge of your investments, you may be looking to add stocks (also called “equities” or “shares”) to your portfolio. If stocks are your objective, you’ll need to know how to buy and sell (or “trade”) them.
Step 1: Open a trading account. Stock trades (buy and sell transactions) can’t be made just anywhere – you have to buy and sell stocks through some kind of authorized brokerage firm. Online brokerage firms (such as Qtrade Direct Investing) are popular with many Canadians because of their low cost and convenience.
Step 2: Add money to your account.
Step 3: Buy your chosen stock.
Pretty straightforward, right? It really is. But there are a few things to know about your chosen stock before you can hit that “buy” button.
What to know before you buy a stock
Before you can input your stock order and execute your trade, you’ll need to know a few things:
- What is the stock’s ticker symbol (a.k.a. stock symbol)? Every stock has a short symbol to identify it on a stock exchange. For example, the stock symbol for Apple Inc. is “AAPL”. The ticker symbol for McDonald’s Corp. is MCD. To buy and sell Barrick Gold Corp. stock, the symbol to use is “ABX”.
- What exchange is the stock listed on? The stock you want to buy (or sell) could trade on a Canadian stock exchange, on a U.S. stock exchange, or on stock exchanges in both countries.
- What currency does the stock trade in? Find out the stock’s currency. If you buy or sell a U.S.-dollar-denominated stock in your Canadian dollar trading account, your returns may be affected by the difference between the U.S. and Canadian dollars. This is called currency risk, and it can work for or against you depending on changes in the exchange rate.
- What is the stock’s share price? Knowing the stock’s current share price, you can calculate how many shares you want to buy with the money you have available to invest..
- Determine what kind of order you want to execute. Every trade has an order type – instructions to buy or sell a stock within certain parameters. You can use simple market orders to buy and sell. Or you can set specific parameters that give you more control and help you reduce (but not eliminate) risk of losses. Here are some of types of orders you can use for your stock purchase:
- The most straightforward type of stock trade is a market order. Your order would be filled at the prevailing market price at the time the order is filled—with no limits placed on it from you. That means if there are big swings taking place in the price of the stock, you could end up buying or selling for more or less than you expected.
- A limit order gives you an added element of control—you can set the top price you’re willing to pay to buy a stock, or the minimum price you will accept to sell a stock. Your trade will only be executed at that price or better.
- Other order types can reduce (but not eliminate) the risk of losing money on stocks you own. A stop market order is an order to sell, but only if the market price drops below a certain level (the “stop price”). If the stock does in fact trade below that price, the stop market order becomes a market order, potentially allowing you to avoid further losses. Note, however, that in a volatile market your sale price could be well below the stop price.
- A variation is a stop limit order, where you set a stop price and a limit price. If the stop price is reached, the order becomes a limit order, to be filled only at the limit price or better. Note that in a volatile market, the market price may fall below your limit price before the trade can be filled.
Deciding what stock to buy
Now you know all about placing a stock trade – but that’s the easy part. The harder part is figuring out what stock to choose – and how it fits into your overall investment strategy and financial goals. Learn more about how to discover stock trading ideas and how to evaluate a stock for your portfolio.
But a brokerage account offers much more than just stocks. Online brokerages give you convenient access to financial markets, empowering you to build a diversified investment portfolio. You can trade stocks, exchange-traded funds, mutual funds, as well as bonds and other fixed income securities quickly and easily, from your computer or from your mobile device. If you’re ready to trade, open an account