Stocks

Essentially a stock is a piece of a company that you can buy. When you buy a stock, you share the ownership of the company. When companies are initially publicly traded, they offer pieces for sale – in exchange for the money you give the company, they offer you a share in their earnings and net assets and liabilities. The stocks (also known as shares) that you’ve purchased can change in value – generally, the more people are willing to pay for a piece of a company, or the more that company is worth, and assuming a constant number of outstanding shares, the more valuable those pieces become.

The stock market is the gathering of buyers and sellers of stocks. The stock market provides the opportunity to buy pieces of these publicly held companies – either from the company itself, or from other investors. It’s a marketplace, filled with people buying, selling, and trading stocks. 

Brokerage firms like Scotia iTRADE act as agents and enable investors to purchase stocks without having to be on the trading floor themselves.

In Canada, you have to be a minimum of 18 years old to buy stocks. Which means that you must be 18 to enter your own stock trading contract. Every provinces and states may have different age requirements. 

New investors should know that asset allocation is one of the founding principles of good investment management. In effect, you’ll be reducing the risk of losing money. When your portfolio includes a mix of stocks, bonds, cash and real estate, you’re effectively practicing asset allocation.

So, what’s the right mix of assets for you? It depends on two key questions. Your time horizon and your tolerance to risk. Let’s break down these two individually.

•  Your time horizon.  How long are you willing to invest to achieve your financial goal?  Months or years? Decades? Younger investors with longer time horizons can feel more comfortable with risk because they can wait out the volatility of the stock market.  Their focus should be on capital appreciation. Conversely, older investors (especially those in retirement) will want less risky investments because their time horizon is shorter and, as they drawdown their investments, will have less time to ride out volatile periods. 

• Your risk tolerance. Your willingness to take on riskier investments for the potential of higher returns defines your “risk tolerance.”   Come up with an investment strategy that works for you. Are you a risk-averse, conservative investor, or are you going to be aggressively trying to beat the market?

You need to consider various factors to determine the amount of money you should invest in stocks.

Here’s 5 easy steps to guide you through placing a trade.

1. To trade Stocks, ETFs and Options simply click on the ‘Trade Now’ button on the bottom right of the Accounts and Quotes & Research pages (in the classic experience) or select the red 'Trade' button in the new experience, this will bring up the trade ticket / order form.
2. Enter the symbol or search by company name.
3. Once you select the symbol, a real-time quote is displayed.
4. Fill out the order parameters on the screen – order type, quantity, price type, and term.  An access code is required once per session.  To learn more about price types, order types and access code, use the Help menu on the top of the page.
5. Click ‘Preview’ to confirm your order details and then click ‘Submit’ to complete your order.  To view the status of your order, click the View Order tab on the top of the trading module.

Scotia iTRADE offers tools, resources, trading and investing education all in one platform. Visit the Account Details tab to monitor your portfolio and track your performance. 

Let’s assume you currently have a brokerage account, and you’re ready to go. The important next step is to set – and stick to – your stock trading budget.  Successful investors will allot a certain percentage of their investment portfolios to trading stocks. Never invest more than you can afford. 

You can use your brokerage’s website or, in the case of mobile devices, their trading app, to place your stock trades. Generally, all major North American stock markets, like the TSX, are open from 9:30am to 4:00pm, Monday-Friday EST.

Once you select a specific stock or ETF to buy, your brokerage will ask you to choose the order type you prefer. The two most common types are market orders and limit orders. 

By choosing a market order, you’re effectively buying or sell the stock at the best available share price at that moment.  

With limit order, you’ll be buying or selling the stock at or better a price you determine. For instance, in the case of buying stock, the limit price is the highest you’re willing to pay for it. Your order will be only executed if the stock price falls to or below the amount you set.

“Shorting a stock” is another way of saying “to sell a stock short”, and to do so you can follow these steps:  

1. Borrow the stock you are betting against 
   
2. Sell borrowed shares immediately 
   
3. Wait for stock to drop and then purchase the shares back at a lower price 
   
4. Return shares to brokerage and profit the difference 
   

Scotia iTRADE has some useful tools to help investors here. However, when you research a stock it’s important to consider a few things:

• Growth trends in your earnings
  
• Investment amount
  
• Where you want to invest
  
• Company strength and performance compared to competitors
  
• Executive leadership strategy at company
  
• Debt-to-equity ratio
  
• Price- earnings ratio
  

Experienced traders will spend as much time considering when to sell a stock as when to buy it, often establishing this figure before even entering the trade.  The “exit strategy” is vitally important to locking in profits while minimizing losses. Let’s quickly touch on the two main actions within an exit strategy.

• Stop-loss: The price at which you’ve decided to buy or sell a stock. The stop can help lessen losses if the stock price moves against your position.

• Take-profit: The price at which you’re content to close your position and take a profit.

To summarize, there is no specific answer to this question. It depends on your investing or trading strategy. 

American depositary receipts 
Certificates issued by a US Depositary Bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR's are "sponsored" the corporation provides financial information and other assistance to the bank and may subsidize the administration of the ADR's. "Unsponsored" ADR's do not receive such assistance. ADR's carry the same currency, political and economic risks as the underlying foreign share; the prices of the two, adjusted for various factors, are kept essentially identical by arbitrage. American Depositary Shares (ADS) are a similar form of certification.

Analyst 
Employee of a brokerage or fund management house who studies companies and makes buy and sell recommendations on their stocks. Most specialize in a specific industry.

Annual Report 
Yearly record of a publicly held company's financial condition. It includes a description of the firm's operations, its balance sheet and income statement. Regulators require that it be distributed to all shareholders. In the US, a more detailed version is called a 10-K.

Arbitrage 
Profiting from differences in the price of a single security that is traded on more than one market.

Bear 
An investor who believes a stock or the overall market will decline. A bear market is a prolonged period of falling stock prices, usually by 20% or more.

Beta (Stocks) 
Measure of a stock's risk in relation to the market. 0.7 means a stock price is likely to move up or down 70 % of the market change; 1.3 means the stock is likely to move up or down 30 % more than the market.

Bid Price 
The highest price a prospective buyer or dealer is willing to pay.

Bull 
An investor who thinks the market will rise.

Bulletin Board Stocks 
Certain stocks not specifically authorized to trade within NASDAQ that were originally printed by the National Quotation Bureau in a daily publication called the pink sheets. Prices given for these stocks may not accurately reflect the most current market conditions for the stock.

Buyout 
Purchase of a controlling interest (or percent of shares) of a company's stock. A leveraged buyout is done with borrowed money.

Capital Gains 
If your company's stock price increases, you will be presented with the opportunity for a "capital gain" which is the profit between what you originally paid for the stock and the higher price you sell it for.

Cash Dividends 
Cash dividends represent the stockholders' share of the company profits. Companies are not legally bound to pay dividends and many companies do not for various reasons. However, if a company does pay out dividends, they are usually paid out once each quarter. Dividends are frequently discussed in terms of "payout ratio" and "yield."

Closing Purchase 
A transaction in which the purchaser's intention is to reduce or eliminate a short position in a stock, or in a given series of options.

Confirmation 
The written statement that follows any "trade" in the securities markets. A confirmation is issued immediately after a trade is executed. It spells out settlement date, terms, commission, etc.

CUSIP number 
The Committee on Uniform Security Identification Procedures was established under the auspices of the American Bankers Association to develop a uniform method of identifying municipal, government and corporate securities.

Day order 
An order to buy or sell stock that automatically expires if it can't be executed on the day it is entered.

Dividend 
Distribution of a portion of a company's earnings, cash flow or capital to shareholders, in cash or additional stock.

Dividend yield 
Is calculated by dividing the annual dividend payment by the per share price you paid for the stock. Thus, if you paid $10 per share and received $0.20 in dividends, your dividend yield would be 2 percent.

Exchange 
The marketplace in which shares, options and futures on stocks, bonds, commodities and indices are traded. Principal Canadian stock exchanges are: Toronto Stock Exchange (TSX), and the TSX Venture Exchange (TSXV). Principal US stock exchanges are: New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASDAQ).

Ex-dividend date 
The first day of trading when the seller, rather than the buyer, of a stock will be entitled to the most recently announced dividend. A stock that has gone ex-dividend is marked with an x in media listings on that date. “Newspaper outdated reference.

Good 'til cancelled 
Sometimes simply called "GTC", this refers to an order to buy or sell stock that is good until you cancel it. Brokerages usually set a limit of 30-60 days, at which time the GTC expires if not re-entered.

Initial public offering (IPO) 
A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock.

Limit order 
An order to buy a stock at or below a specified price or to sell a stock at or above a specified price. For instance, you could tell a broker "Buy me 100 shares of xyz Corp at $8 or less" or to "sell 100 shares of xyz at $10 or better."

Limited liability 
If you hold common shares you cannot be held personally liable for the debts or for the actions of a company in which you invest, and generally cannot lose more than the amount of your investment even if the company goes bankrupt.

Liquidity 
The degree to which a security can be bought or sold, without affecting the market price. Something which trades frequently and with high volume is more liquid than something which trades infrequently or with little volume.

Market capitalization 
The total dollar value of all outstanding shares. Computed as shares multiplied by current market price. It is a measure of corporate size.

Market order 
An order to buy or sell a stock at the price which is current when the order is executed.

Over-the-counter (OTC) 
A security which is not traded on an exchange, usually due to an inability to meet listing requirements, is said to trade Over-The-Counter. For such securities, broker/dealers negotiate directly with one another over computer networks and by phone, and in the US the NASD monitors their activities. See also OTC Bulletin Board, Pink Sheets and Bulletin Board Stocks.

OTC bulletin board 
An electronic quotation system for unlisted, non-Nasdaq, over-the-counter securities

Payment Date 
Date on which a declared stock dividend or a bond interest payment is scheduled to be made.

Payout Ratio 
Is calculated by dividing the annual dividend payment by the annual earnings per share. For example, if ABC Company had earnings per share of $1.00 and paid out $0.05 per quarter or $0.20 annually in dividends, its payout ratio would be 20 percent.

Pink sheets 
A daily listing of bid and ask prices for over-the-counter stocks not included in the daily NASDAQ over-the-counter listings, published by the National Quotation Bureau and used by brokerages.

Prospectus 
Formal written document to sell securities that describes the plan for a proposed business enterprise, or the facts concerning an existing one, that an investor needs to make an informed decision. Prospectuses are used by Mutual Funds to describe the fund objectives, risks and other essential information.

Proxy 
Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting. Includes information on closely held shares. Shareholders can and often do give management their proxy, representing the right and responsibility to vote their shares as specified in the proxy statement.

Record date 
Date by which a shareholder must officially own shares in order to be paid a dividend or other distribution. For example, a firm might declare a dividend on Nov 1, payable Dec 1 to holders of record Nov 15. Once a trade is executed an investor becomes the "owner of record" on settlement date.

Reverse stock split 
A proportionate decrease in the number of shares, but not the value of shares of stock held by shareholders. Shareholders maintain the same percentage of equity as before the split. For example, a 1-for-3 split would result in stockholders owning 1 share for every 3 shares owned before the split. A firm generally institutes a reverse split to boost its stock's market price and attract investors.

Rights offering 
Issuance of "rights" to current shareholders allowing them to purchase additional shares, usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the offering. Rights are often transferable, allowing the holder to sell them on the open market to others who may wish to exercise them. Rights offerings are particularly common to closed end funds, which cannot otherwise issue additional common stock.

SEC 
The Securities and Exchange Commission, the US primary federal regulatory agency of the securities industry.

Settlement date 
The month, day, and year the transaction will settle. 

Share repurchase 
Program by which a corporation buys back its own shares in the open market. It is usually done when the company thinks its shares are undervalued. Since it reduces the number of shares outstanding and thus increases earnings per share, it tends to elevate the market value of the remaining shares held by stockholders.

Short sale 
Selling a security that the seller does not own but is committed to repurchasing eventually. It is used to capitalize on an expected decline in the security's price.

Stock dividends 
Companies sometimes pay out dividends in stock. For example, if the company declares a 10% stock dividend that means that the number of shares you own will be increased by 10%. Although you are getting additional shares, you must remember that your total ownership of the company has not increased. The proportionate ownership of all shareholders has been increased equally by 10 percent. Another point to keep in mind is that unlike cash dividends, stock dividends are not necessarily taxed in the same way as cash dividends.

Stock split 
Companies frequently increase or decrease their number of shares outstanding by splitting the stock. An example explains the process best. Say you own 200 shares of ABC Inc., which has 100,000 shares outstanding, trades on the NYSE for $80 per share, and earns $4.00 per share. Then ABC declares a 2 for 1 split. You will now get one additional share of ABC for each share that you already own for a total of 400 shares. At the same time, ABC will now have 200,000 total shares outstanding and all of its applicable ratios will be divided by this higher number. For example, its earnings per share will be $2.00 and its price will be $40.00. In other words, the total pie is the same size, it's merely been divided into smaller pieces.

Stop loss order 
An order to sell a stock when the price falls to a specified level.

Trade date 
The date on which a trade occurs. 

Voting rights 
You can vote on company issues such as electing the board of directors and issuing new securities. In most cases, you will receive a ballot form, known as a "proxy" that you can mail back to the company.