Stocks: What They Are and How They Work

What it is

A stock (also called a share or equity) is a small piece of ownership in a company. When you buy a stock, you become a part-owner of that business — from giant banks to tiny startups. If the company grows and becomes more valuable, your piece becomes more valuable too. If it struggles, your piece can lose value.

How it works

1. Companies list shares on stock exchanges. In Canada, that’s mainly the Toronto Stock Exchange (TSX). Many Canadians also buy US stocks on the New York Stock Exchange (NYSE) or Nasdaq.
2. You buy and sell through a brokerage account — an online investing account, similar in concept to online banking but for investments.
3. Prices move with supply and demand. Thousands of buyers and sellers set the price every second the market is open. Good news about a company tends to push its price up; bad news pushes it down.
4. You make money two ways. First, capital gains: selling for more than you paid. Second, dividends: some companies regularly pay shareholders a share of profits in cash.
5. Placing an order is simple. A market order buys at the current price; a limit order buys only at a price you set (or better). Beginners usually start with limit orders so there are no surprises.

What it’s used for

Stocks are for long-term wealth building — money you won’t need for many years, like retirement savings decades away. They’re for people who can handle the ride: prices swing up and down, sometimes sharply.

Stocks are NOT for money you need soon — next year’s tuition, a down payment, or your emergency fund. Anyone who might need the money within a few years should not have it in individual stocks.

Who provides it in Canada

You buy stocks through a brokerage. Popular Canadian options include:

• Wealthsimple — beginner-friendly app-based brokerage
• Questrade — long-established independent online brokerage
• National Bank Direct Brokerage — bank-owned, commission-free trading
• Interactive Brokers — powerful platform for active investors
• Bank-owned brokerages — RBC Direct Investing, TD Direct Investing, BMO InvestorLine, CIBC Investor’s Edge, Scotia iTRADE

Many Canadian brokerages now charge no commission on stock trades, but fee schedules change — check the current one before you open an account.

What it costs

• Trading commissions: many brokerages charge $0 per trade now; some still charge a flat fee or per-share fee. Check current schedules.
• Currency conversion fees: buying US stocks means converting Canadian dollars to US dollars, and brokerages charge for this — often around 1–2% each way. On frequent US trading this adds up fast, so check current rates.
• Account fees: some brokerages charge annual or inactivity fees, especially on small accounts. Ask before you open.
• Regulatory/ECN fees: tiny per-trade charges (fractions of a cent per share) that barely register, but they exist.

Newcomer notes

• You can open a brokerage account as a newcomer. You generally need to be the age of majority (18 or 19 depending on your province), have a Canadian address, and provide your SIN for tax reporting.
• You do not need to be a Canadian citizen — permanent residents, work permit holders, and other residents can open accounts. Tax rules depend on your residency status, not citizenship.
• Stocks can be held inside a TFSA or RRSP, where the tax treatment is much friendlier. Learn those accounts before you buy your first stock.
• If your home country taxes worldwide income, understand both countries’ rules before investing — or talk to a cross-border tax professional.

Risks / watch-outs

• Prices fall. Stocks routinely drop 10–20%, and occasionally much more. Only invest money you can afford to leave alone for years.
• Individual companies can fail. If a company goes bankrupt, its stock can go to essentially zero. This is why diversification matters.
• Currency risk. US stocks add exchange-rate swings on top of stock swings.
• No safety net. Stocks are not covered by CDIC deposit insurance. There is no guarantee.
• Emotional decisions are expensive. Buying on hype and selling in panic is the classic way beginners lose money.

FAQ

How much money do I need to start? Many Canadian brokerages have no minimum to open an account, and some offer fractional shares (buying a slice of one expensive share). Check current offerings — the barrier is lower than most people think.

Do I need to be a Canadian citizen to buy stocks? No. Residents — including newcomers on work or study permits — can open brokerage accounts. What matters for taxes is residency, not citizenship.

What’s the difference between buying on the TSX and the NYSE? Mostly currency and hours. TSX trades in Canadian dollars during Canadian market hours; US exchanges trade in US dollars. Also note: the US withholds 15% tax on dividends paid to Canadian residents under the Canada-US tax treaty (you generally claim a foreign tax credit on your Canadian return — check CRA guidance).

Can I lose more money than I invest? With plain stock buying, no — the worst case is losing what you put in. (Borrowing to invest, called margin, or trading options is a different story and not for beginners.)

Should I pick individual stocks or just buy funds? Honest answer: most beginners do better starting with diversified funds like ETFs, which spread your money across hundreds of companies at once. Individual stocks are a concentrated bet — exciting, but riskier. See our ETF and index fund explainers.

Educational content only — not financial advice. Rules and promotions change; verify current details with the provider or CRA.