Earlier this year Vanguard Group announced they would be setting up shop in Canada. At that time, there was no information on what kind of products they would offer or if they would be dealing directly with the investing public or through advisors.
Today, Vanguard announced they have filed the preliminary prospectus for six exchange traded funds (ETFs) which will trade on the Toronto Stock Exchange (TSX).
Here are the ETF details:
Vanguard MSCI Canada Index ETF, which will seek to track the performance of the MSCI Canada Index;
Vanguard Canadian Aggregate Bond Index ETF, which will seek to track the performance of the Barclays Capital Global Aggregate Canadian Float Adjusted Bond Index;
Vanguard Canadian Short-Term Bond Index ETF, which will seek to track the performance of the Barclays Capital Global Aggregate Canadian Government/Credit 1-5 year Float Adjusted Bond Index;
Vanguard MSCI U.S. Broad Market Index ETF (CAD-hedged), which will seek to track the performance of the MSCI U.S. Broad Market 100% Hedged to CAD Index;
Vanguard MSCI EAFE Index ETF (CAD-hedged), which will seek to track the performance of the MSCI EAFE 100% Hedged to Canadian Dollars Index; and
Vanguard MSCI Emerging Markets Index ETF, which will seek to track the performance of the MSCI Emerging Markets Index.
The ETFs themselves are not a surprise – a Canadian index, Canadian bond with medium duration, Canadian short term bond, US market index, EAFE market index (EAFE is short for Europe, Australia and the Far East) and Emerging markets.
These are the basic building blocks of a diversified global portfolio. The big surprise in my mind is that the US & EAFE index ETFs are Canadian dollar hedged. This is similar to the approach taken by iShares that hedges most of their non-Canadian ETFs as well.
I disagree with this approach as I believe that currency fluctuations in a non-hedged ETF offers more diversification than the more expensive hedged ETF.
The big question regarding these ETFs will of course be the fees. Unfortunately, there was no word on the management expense of these ETFs. Currently, Vanguard offers low-cost ETFs trading on the New York Stock Exchange which are available to Canadians. Most discount brokerages charge high currency exchange fees, so having cheap ETFs available on the TSX will reduce currency exchange fees considerably.
Most Canadian investors use a financial advisor or a bank and invest their money in mutual funds. When it is time to sell, they just have to call their advisor and ask them to do the sell.
Selling individual stocks or ETFs (exchange traded funds) at a Canadian discount brokerage is a bit more complicated because you have to enter the sell order yourself instead of just telling someone else to do it.
If you own a stock or ETF, then you obviously figured out how to buy a stock or ETF at your discount brokerage. Sell orders are a bit different than purchases and this article might come in handy if it’s been a while since you have placed a trade of any kind.
Decide what to sell. It’s out of scope for this article, but you should know which stock or ETF you wish to sell.
Sell a stock or ETF. This is the topic which will be detailed here. I’ll be using the interface at Questrade discount brokerage to demonstrate how to make a trade, but whatever brokerage you use should have something similar. If you notice differences with your brokerage, please let me know and I’ll add that information to this article.
Here are the steps to sell a stock or ETF.
1) Know which security you wish to sell and how much.
I’m assuming at this point, you already know what stock or ETF you want to sell.
In my case, I wish to sell a real estate investment trust security that I own called RioCan. I have 204 shares of RioCan and I wish to sell all of them. This will be the example security I’m going to use for this article.
2) Find out the stock ticker symbol for the security
Every security that trades on a stock exchange will have a stock ticker symbol. This symbol will be needed to enter the sell order.
Since you already own the security, finding the stock trading symbol should be as simple as looking at your discount brokerage account.
In my Questrade account I log into the trading platform QuestraderWeb. I select “Positions” and I can see that the Symbol for RioCan is “REI.UN.TO”. Note that the “.TO” suffix refers to the Toronto Stock Exchange.
3) Find out which exchange the security trades on
There are different stock exchanges in different countries and the security you want to sell will be traded on one or more exchanges.
If the security you wish to sell is Canadian, it will likely be traded on the TSX (Toronto stock exchange) and you have to select that stock exchange when making the order. In the case of Questrade, you don’t select the exchange – you just include the “.TO” extension for any trades. If the security is American (such as a Vanguard ETF), you don’t need an extension – just enter the basic ticker symbol (ie VTI for the Vanguard total American stock ETF).
In my case, the REI security trades on the Toronto stock exchange. I need to use “REI.UN.TO” when attempting any trading of this security with Questrade.
Understand that some stocks are traded on both the Toronto stock exchange as well as the New York stock exchange. If we look at Bank of Montreal, the symbol “BMO.TO” is the ticker symbol of the security that trades on the Toronto stock exchange. The symbol “BMO” is the ticker symbol of the security that trades on the New York stock exchange. Make sure you use the proper ticker symbol and select the proper exchange!
Note that other discount brokerages have their own methods of notating the exchange.
Questrade – For TSX stocks, use the suffix “.TO” ie XRB.TO, for NYSE – use basic symbol ie XRB.
RBC Direct and TD Waterhouse – Choose the desired exchange and then enter the basic symbol ie XRB.
Interactive Brokers – Enter basic symbol and choose the appropriate choice from the list. Ie enter “RY” and you will see a list of exchanges.
Some brokerages will have shortcut links in the “positions” or “balances” page which will allow you to easily sell shares of any stock you currently hold.
5) Find the security price and calculate how many shares you should sell
Typically when an investor wants to sell a stock or ETF, they either want to sell a specific dollar amount or they want to sell their entire position.
If you want to sell all your shares, you just need to determine how many shares you own. If you look at the screen shot just above, you can see that I have 204 shares of REI.
If you want to sell a specific dollar amount of shares, you have to find out the most recent price for the security and calculate how many shares to sell. Unlike mutual funds which can be sold in partial units, stocks and ETFs can only be sold in whole shares. This means you probably can’t sell the exact dollar amount you planned, but you should be close.
Every major financial website will have a “get quotes” section where you can enter a security ticker symbol and it will tell you what price the security is trading at. This can also be done on the trading platform at your discount brokerage. I use Yahoo Finance for this purpose.
When I enter REI.UN.TO, I find out that the last trade was $26.72. If I want to sell $1,000 of REI or as close to that amount as possible, I have to divide the desired sell amount by the share price and then drop any decimals.
$1,000 (desired sell amount) / $26.72 (share price) = 37.425 shares. I drop all the decimals and I’m left with 37 whole shares which will net me $988.64 minus the trading commission.
Of course I can also choose to sell 38 shares which will give me a bit over $1,000.
In my case, I want to sell all the shares, so I just need to know how many shares I have.
At this point I have the:
Stock ticker symbol – REI.UN.TO
Number of shares to sell – 204
Approximate share price – $26.72
Now I know exactly what I’m selling and how many shares. I’m still not ready to place a trade, because there a few more things to cover.
6) Market order vs limit order
When placing a sell order, you can indicate that it be placed as a “market” order or a “limit” order.
A market order means you don’t put any conditions on the price of your order. Once you place the order, the sell will get completed (or filled) as soon as enough shares are offered on the exchange. For larger companies and high volume ETFs, this will happen instantly.
A limit order means you specify a lower limit for the sale price of the shares. For example my REI shares are trading at $26.72. If I put a sell order with a limit price of $26.85 (higher than the current price), the order won’t get filled until the stock price goes up a bit and someone agrees to pay $26.85 for my REI shares.
On the other hand, I might place a sell order with a limit price lower than the current market price – say $26.50. The reason I would do this is to avoid the possibility that trading is light and you end up selling the shares at a rate well below market. This is practically impossible if you stick to liquid, high volume stocks that have many shares trading at any given time. Note that in this case, your order will still be traded at “market” as long as your limit price is below the market price. So putting a limit of $23.50 does not mean I’m offering to sell my REI shares for $23.50. It just means I won’t accept a price less than $26.50 for the shares.
I would strongly urge that you don’t place orders when the exchange is closed, unless you put a limit on the order.
In theory, limit orders are safer than market orders. However, I’ve completed a fair number of market orders and limit orders and never had a problem with either. My current process is to always place a limit order just to be on the safe side.
7) Log into your discount brokerage account
At this point we’re ready to log in. With Questrade, you have to log into your main account at myquestrade.com and then log in to your trading platform. Other discount brokerages will have just one login.
Once I’m in the account, I select MY PLATFORMS and then Login to equities platform. If this is your first time, you have to select which trading platform you want to use. I use QuestraderWeb which is the free trading platform.
Now I choose “QUICK ORDER ENTRY” and then “Stocks” from the drop-down menu. The form on the right hand side is used to enter an order.
I’m going to break up my sell order, so I can demonstrate one sell with a market order and one sell with a limit order.
How to enter a market order
For my market order sell I’ll fill in the fields like so:
Symbol = REI.UN.TO
Quantity = 100
Transaction = Sell
Order Type = Market
Duration = Day*
Preferred ECN = AUTO
All or None* = Leave unchecked
*Duration – “Day” means that the order will only exist until the end of the trading day. If it is unfilled at that time, then it disappears.
Market sell order
The next step is to verify the share price by clicking on the QUOTE button at the bottom of the form.
Now we see a pile of new information on the quote screen.
Quote feature
The main info I’m interested in is the Last Price which is $26.68. This has gone down a bit since I looked at the price earlier.
Next step is to click on PREVIEW ORDER
Preview order
This is your last chance to verify the order information. Everything looks good, so now I will click on “SEND ORDER”.
The order was filled (or executed) instantaneously at $26.68.
Sell order execution
If I want to review the order details, I can click on “YOUR ACCOUNT” and “Messages”.
Order details
From this I can see the commission ($4.95) and the trade total of $2,663.05 which represents the share proceeds and commission.
Some brokerages (including Questrade) add another fee to the commission called ECN fees. They are fairly small, but if you are doing high volume trades, it can be a factor.
How to enter a limit order
Most of the steps for a limit order are the same as for a market order.
Start with “QUICK ORDER ENTRY”. The form on the right hand side is uses to enter an order.
The key difference with a limit sell is that I will be specifying a price which represents the lowest price I’m willing to sell the stock for. In the case of REI, the current market price is $26.68. If I select a limit that is lower than $26.68, the order will likely get filled at market (just like my market order) and the limit will just be there for protection.
Another strategy is to put a limit price that is higher than the current market price and hope that the market goes up and you can sell at a higher price. In this case you will have a pending order which can be cancelled. This is a good scenario for using the “GTC” or good till cancel order type so that the order doesn’t get cancelled at the end of the day.
I like to select a limit price that is just below the market price – perhaps 1 or 2% lower. In this case I’ll try setting the limit at $26.40 which is just below the market price of $26.68. If the stock is more volatile you might have to set a lower limit because the stock could jump through the limit before you place your order.
It’s not a bad idea to monitor the price movements of a stock for a little while to get a feel for the volatility. You want to set the limit low enough below the regular price points in order for the order to get filled quickly. For example if you check the price of a stock every 60 seconds and see the following: $23.12, $23.09, $23.14, that stock price is not moving around much and you can probably set a sell limit price of $23.00 and be fairly assured it will be filled.
For my limit order sell, I’ll fill in the fields like so:
Symbol = REI.TO.UN
Quantity = 104
Limit Price = $26.50 Note, you have to select the order type of “Limit” before this field becomes active.
Transaction = Sell
Order Type = Limit
Duration = Day
Preferred ECN = AUTO
Limit purchase order
The next step is to verify the share price by clicking on the QUOTE button at the bottom of the form.
Now we see a pile of new information on the quote screen.
Quote
I can see that the last price for REI is $26.68.
Next step is to click on PREVIEW ORDER
Sell limit order preview
This is your last chance to verify the order information. It look good, so now I will click on “SEND ORDER”.
The order was filled (or executed) instantaneously at $26.68 which is the exact same price as my market order.
Sell limit order completed
Some suggestions
If you are not familiar with placing stock or ETF trades, it can be a bit stressful if you are placing large sell orders. I suggest starting off with a small trade or two just to get familiar with the process. Yes, you will be burning a couple of commissions, but trust me – it’s worth it.
Another suggestion is to see if your brokerage offers a “test” area where you can place dummy trades to get familiar with the trading platform. Questrade offers a free trading platform trial which you can access to try some test trades.
Another option is just to use cheap index funds – they are a heck of a lot easier!
Please let me know if you have anything to add to this information based on your experience with different brokerages.
Another big drop in the markets today. The TSX fell a bit more than four percent and the American S&P500 dropped almost seven percent today. I’ll admit I wasn’t too upset that my “flat” prediction I made after the S&P downgraded U.S. government debt was very wrong, since I was able to do some more buying.
Today’s market drops were bigger than last Thursday and add on to what has been a couple of very bad weeks in the market.
It might be tempting to bail out of the markets if you are nervous about your investments, but that would be a mistake.
Stay the course.
Don’t sell anything and keep on making your regular contributions.
Here is an excellent, easy to read post on market volatility and how your asset allocation should reflect your risk tolerance. Thanks to Mike @ Oblivious Investor for pointing out that post.
The big news this weekend in investing circles was the announcement that Standard & Poor has lowered the US Government Debt rating from AAA to AA+. This is the first time in 70 years that US debt hasn’t been rated triple-A. The other two major rating agencies Fitch and Moody’s kept their rating at AAA.
The United States has some economic problems, but there is no danger of it defaulting on its debt. Even if the recent “debt ceiling” debacle hadn’t been resolved, it is extremely unlikely that any interest payments on U.S. debt would have been missed.
Part of the reason given for the downgrade was that recent debt ceiling agreement will not reduce the deficit enough over the next decade to satisfy S&P. The problem with this logic is that S&P is extrapolating current events fairly far in the future and concluding that things won’t get better. The U.S. might not be going in the right direction in terms of finances, but there is plenty of time for the American government to turn things around, especially if they can raise taxes. Can the Americans get to the point where their debt ratings should be downgraded? Absolutely – but they just aren’t there yet.
Will the markets crash on Monday because of the downgrade?
I’m hoping so – only because I’m looking to make some equity purchases and lower prices would please me greatly. However, I doubt the downgrade will affect the market significantly. The reality is that whatever is good or bad about the U.S. government’s finances will be the same on Monday as it was on Friday. The downgrade won’t change very much. In theory, it’s possible that government borrowing rates will increase, but that is not certain. If U.S. treasuries remain as a “safe haven”, borrowing costs will not increase at all. The reality is that there aren’t many other “safe haven” options for large investors.
On the other hand, the stock markets have been trending down lately (especially on Thursday), so perhaps the downgrade will set off a stampede for the exits.
I’m predicting a flat U.S. stock market on Monday. Please note that I’ve assigned a probability of 51% success for that prediction. 🙂
What’s your prediction for the Monday stock trading session?
The Canadian Capitalist recently wrote about couch potato investing and Sampson left some interesting comments about rebalancing and passive investors.
1) The main reason I rebalance is to maintain a consistent risk level in my portfolio. For example if I decide I want a portfolio made up of 60% equities and 40% bonds and then after a couple of years, the portfolio is 70% equities and 30% bonds, my portfolio is now riskier than I planned and I will want to rebalance back to 60% equities and 40% bonds.
2) Asset allocation is not something that just couch potato investors do – every investor has an asset allocation and likely rebalances. Of course if you have 100% equities, your asset allocation never changes, so no rebalancing is required.
3) I’m not a believer that rebalancing (in any form) will increase returns significantly or at all. It really depends on the market activity and an assumption that asset classes will “revert” to the mean. In some markets it will help – in other markets it will hinder.
4) Rebalancing assumes that your different asset classes are not correlated. In my case, I use a short term bond ETF for my fixed income – I’m fairly certain that short term Canadian bonds are not very correlated with various world equities. Even if they were, my asset allocation would never change much and I would have no need to rebalance.
5) Rebalancing can take many forms including tactical asset allocation. The reason a lot of people like to use a specific rebalancing rule is because it makes things easier. I don’t have a firm rebalancing rule, but I will try to check my portfolio once a year and if the allocations are significantly out of what, I’ll rebalance.
Pooled Registered Pension Plans (PRPP) were first announced by the Conservatives during the last election campaign. As is my custom, I ignored it since most campaign promises never see the light of day after the election.
Now that the Conservatives have a majority government and recently issued more information on PRPPs, I thought it would be worth a quick look to see how the plan works and who can benefit from a PRPP.
What exactly is a Pooled Registered Pension Plan (PRPP)?
A PRPP is a defined contribution pension system offered by third party financial institutions such as banks and insurance companies. The plan administration and fiduciary duty will be the responsibility of the financial institutions. This should make it fairly easy for small to medium sized companies or self-employed workers to set up a PRPP.
The actual investment instruments have not been clarified, but the government has mentioned large “pooled” investment funds with low costs.
Group RRSPs are an option for companies who want to offer a workplace savings plan, but they are a fair bit of work to administer and the employer has the fiduciary duty as well. Group RRSPs are not as practical for smaller companies or the self-employed.
What is the reason behind PRPPs?
The government is proposing PRPPs as a way to “improve the range of retirement savings options for Canadians. Unfortunately, improving the range of options doesn’t necessarily translate into any extra retirement savings.
The goal is to provides access to 3.5 million Canadians who don’t have access any kind of registered pension plan through their workplace (such as a defined benefit pension plan or a group RRSP).
Those people currently have access to RRSPs and TFSAs, but a lot of them are not properly utilizing either account type. Lack of saving discipline and investment knowledge is likely the main reason. It takes a bit of work to get an investment account at a bank or through a financial advisor and some people can’t be bothered.
Since the plans aren’t going to have mandatory contributions, they will basically just level the playing field for employees of smaller companies, so they have easier access to what is essentially a group administered RRSP.
There are some big benefits of a workplace savings plan. Contributions made from payroll deductions are very convenient. The ability to make a contribution from your pay cheque into a registered account without having to pay any withholding tax is also a great feature.
Who will benefit from PRPPs?
Employees who work for a company that does not currently offer any kind of workplace pension saving program will benefit from having access to a PRPP. Even if the employer doesn’t offer a PRPP, employees or self-employed workers can still join one on their own.
Employers that are too small for group RRSPs should be able to offer a PRPP, which might serve as a good recruiting and retention tool.
Employers that currently offer group RRSPs might be interested in switching to a PRPP in order to reduce administration costs and remove their fiduciary duty.
Who won’t benefit from PRPPs?
Employees that have a defined benefit pension plan or an employer-sponsored defined contribution pension plan (such as a group RRSP) won’t have access to a PRPP, which makes sense since they don’t need one.
Anyone who is not currently employed will not benefit from PRPPs.
What kind of investments will be offered through PRPPs?
This part of the new pension plan type is not clear. The government has referred to an “investment pool”. I’m not sure what that refers to. Will there be specific funds run by a private company that any worker can invest in? Will there just be a few big funds that everyone will invest in? Ie Will employees of XYZ Autobody shop will be investing in the same Canadian equity fund that the employees of the local pizza place are investing in? Or can the plan administrator offer any funds/ETFs publicly available?
Hopefully more details will be forthcoming on this issue.
On the PRPP government framework page, it says “lower costs that result from large pooled funds.”
That statements seem pretty naive to me. How exactly will the fees be kept low? Will this be mandated by the government? Economy of scale means nothing – just look at Canada’s largest mutual fund – the $14 billion Investor’s Group Dividend fund for an example of how economy of scale saves money for investors. The MER on that fund is a whopping 2.68% in spite of the massive size of the fund. In this case, all the economy of scale savings are going straight to the Investor’s Group shareholders – not the mutual fund investors.
Will money in a PRPP be locked-in?
According to the PRPP framework, employer contributions will be locked-in – similar to money in a LIRA account. This is really dumb and will add a lot of hassle to the plans. It should be up to the employer to decide on a vesting period for any employer contributions, after which the employee can do whatever they want with the employer contribution money.
Will the PRPP be mandatory for employees?
No, it will be up to the employee to make use of the PRPP. It’s possible that employers might have to auto-enrol every employee, but they can’t force the employee to contribute.
Will the PRPP be mandatory for employers?
It’s up to each province to decide if offering an PRPP will be mandatory for employers.
Will PRPP contributions affect RRSP contribution room?
Contributions to an PRPP are treated like RRSP contributions as far as taxes go. Any employer contributions are also considered contributions. IE If you have $8,000 of RRSP contribution room available for a particular year and your employer contributes $2,000 to an PRPP and you contribute $3,000 to the PRPP – that means you have used up $5,000 of RRSP contribution room.
Summary
These plans will close a gap in workplace pension saving coverage by offering a defined contribution pension plan to workers who don’t currently have access to one. The term “coverage” only refers to giving access to these workplace plans. It doesn’t mean that any employees will use them.
I’m skeptical that PRPPs will make much of a difference, but if this plan is offered with financial advice and the costs are low, it might help some people get started with their retirement savings.
This won’t do anything for the large segment of the population that can’t or won’t save money for their retirement. You can lead a horse to water….
I’ve been spending some time recently updating the Canadian discount brokerage comparison which contains lots of information about all the Canadian discount brokerages.
I decided to re-test the average wait time (when phoning) to make sure the shortcuts were up to date as well as the wait times. I thought it would be interesting to share the results here as well as look at the biggest improvements and declines.
My method is fairly unscientific (described in the last paragraph of this post) and doesn’t cover all aspects of customer service, but I think for people who are concerned with wait times when calling their broker – it might give them some idea of how the brokers compare.
Brokerages ranked by wait time
Not surprisingly, the smaller independent brokerages that scored well on wait times last year also did well this year. The main reason for this is that the bank owned brokerages have a lot more messages and more extensive phone trees.
Qtrade and Options Express which have the shortest wait times, only make you listen to a short message and no phone tree. CIBC on the other hand wins the “worst wait time” award, mainly because of the ads, messages, and lengthy phone tree which took me one minute and 46 seconds to get through. When I used the phone short cuts (available on the brokerage comparison), it took a more reasonable 25 seconds to get through.
[table id=12 /]
Biggest changes from last year
None of the brokers did appreciably worse than last year, but on the improvement side – there were a number of brokers that answered the phone much faster.
Questrade was the big winner in this category. Last year they had one of the longest wait times of 168 seconds. This time they were a more respectable 51 seconds. Interactive Brokers, ShareOwner and Disnat also made some significant improvements.
[table id=13 /]
Phone call wait time methodology
The wait time was measured from after I finished dialing to when a customer service rep started talking. The automated message system was quite time consuming in some cases, which is why if you use the key prompt shortcuts, your actual wait times should be much less. The wait time averages were based on a minimum of five phone calls made on business days between the hours of 9:30 am and 4:00 pm.
It should be noted that I did not use any of the automated message system shortcuts to save time – I wanted to replicate the experience of someone who wasn’t familiar with the automated message system.
Most Canadians do their investing with banks or financial advisors. When they want to invest in equities, typically mutual funds are used.
Whether they are high priced or low priced, mutual funds are pretty easy to buy. You just tell your advisor which funds to buy and hand a cheque over. Even if you are a do-it-yourself investor, it’s still easy to buy mutual funds.
Buying individual stocks or ETFs (exchange traded funds) at a discount brokerage is an entirely different experience. YOU have to set up the account, YOU have to transfer money to the account and YOU have to make the actual purchase.
It can be a bit intimidating to place a order with a discount brokerage for the first time. It’s not rocket science, but there are some things to know which will make it a lot easier.
Note – This article will not cover asset allocation or how to decide which ETF or stock to buy. This article will be useful if you already know what stock or ETF you want to buy, but aren’t sure exactly how to go about making it happen. It might also convince you to stick with mutual funds. 😉
General steps:
Pick a discount brokerage. Here is my Canadian discount brokerage comparison for reference. There are a lot of different costs involved when choosing a brokerage, so make sure you understand what type of investor you will be and how big your portfolio is. You can save quite a bit of money if you pick a brokerage that suits your investment style and portfolio size.
Set up the account. This is the most painful part of the process. You have to fill out documents, mail them in, set up logins etc. It takes a while, but you only have to do it once.
Fund the account. You can’t buy anything if there isn’t any money in your account. Send a cheque, move money electronically or transfer existing stocks or ETFs from another investment account. You have to move money into the investment account where you wish to make a purchase. For example if you have an RRSP and TFSA account at a discount brokerage and you want to make a purchase in the RRSP account – move the cash into the RRSP account. I have bill payments set up for my Questrade accounts and I just have to make a payment to move money from my CIBC chequeing account.
Decide what to buy. It’s out of scope for this article, but you should have some idea of what kind of asset allocation you want, then decide which securities you want to buy.
Buy a stock or ETF. This is the topic which will be detailed here. I’ll be using the interface at Questrade discount brokerage to demonstrate how to make a trade, but whatever brokerage you use should have something similar. If you notice differences with your brokerage, please let me know and I’ll add that information to this article.
Here are the steps to buy a stock or ETF”
1) Know what security you want to buy and how much.
I’m assuming at this point, you already know what stock or ETF you want to buy. Five per cent of my portfolio is made up of real return bonds. For this allocation, I use the iShares real return ETF. I need to purchase approximately $1886 for rebalancing purposes. This will be the ETF I’m going to use for this article.
2) Find out the stock ticker symbol for the security
Every security that trades on a stock exchange will have a stock ticker symbol. This symbol will be needed to make the purchase.
There are a number of ways to find out the ticker symbol. In my case, I can go to the iShares.ca website and look it up. The ticker symbol in this case is “XRB”. Another method is to type in the name of the security into a quote site like Yahoo Finance. If I type in “iShares real return bond”, it returns the symbol “XRB.TO”.
Hmmm…so why does the iShares site say the ticker symbol is “XRB” and Yahoo says it’s “XRB.TO”? The answer is that they are both right. “XRB” is the basic symbol, but “.TO” is the extension which indicates which exchange the security trades on.
3) Find out which exchange the security trades on
There are different stock exchanges in different countries and the security you want to purchase will be traded on one or more exchanges.
If the security you wish to purchase is Canadian, it will likely be traded on the TSX (Toronto stock exchange) and you have to select that stock exchange when making the order. In the case of Questrade, you don’t select the exchange – you just include the “.TO” extension for any trades. If the security is American (such as a Vanguard ETF), you don’t need an extension – just enter the basic ticker symbol (ie VTI for the Vanguard total American stock ETF).
In my case, the iShares real return bond ETF has a ticker symbol XRB and trades on the Toronto stock exchange. I need to use “XRB.TO” when attempting any trading of this security with Questrade.
Understand that some stocks are traded on both the Toronto stock exchange as well as the New York stock exchange. If we look at Bank of Montreal, the symbol “BMO.TO” is the ticker symbol of the security that trades on the Toronto stock exchange. The symbol “BMO” is the ticker symbol of the security that trades on the New York stock exchange. Make sure you use the proper ticker symbol or select the proper exchange!
Note that other discount brokerages have their own methods of notating the exchange.
Questrade – For TSX stocks, use the suffix “.TO” ie XRB.TO, for NYSE – use basic symbol ie XRB.
RBC Direct and TD Waterhouse – Choose the desired exchange and then enter the basic symbol ie XRB.
Interactive Brokers – Enter basic symbol and choose the appropriate choice from the list. Ie enter “RY” and you will see a list of exchanges.
4) Determine the currency of the security
Basically if the security trades on the Toronto stock exchange, it will be in Canadian dollars and if it’s on the New York stock exchange, it will be in US dollars.
At Questrade, if you have a registered account or a non-registered account that is not margin-eligible, you can either convert money to the proper currency before placing the order or the brokerage will convert money for you if there isn’t enough of the required currency.
If you have a non-registered margin account, Questrade will draw into margin to fund any shortfall, they won’t convert any other currency to fund the order.
Check what options are available for currency conversion at your brokerage.
Once I calculate how much money I need for a purchase, I like to convert any money necessary to make sure that there is enough of the proper currency to cover the purchase.
5) Find the security price and calculate how many shares you can buy
Unlike mutual funds which can be purchased in partial units, stocks and ETFs can only be purchased in whole shares. This means you probably can’t buy the exact dollar amount you planned, but will only be able to purchase a lessor amount with some cash left over.
Every major financial website will have a “get quotes” section where you can enter a security ticker symbol and it will tell you what price the security is trading at. This can also be done on the trading platform at your discount brokerage. I use Yahoo Finance for this purpose.
When I enter XRB.TO, I find out that the last trade was $23.12. I want to buy $1886 of XRB or as close to that amount as possible to complete my rebalancing process. To calculate how many shares I can buy, I have to divide the desired purchase amount by the share price and then drop any decimals.
$1886 (desired purchase amount) / $23.12 (share price) = 81.57439 shares. I drop all the decimals and I’m left with 81 whole shares which will cost $1,872.72 at a share price of $23,12.
If you have enough money in the account to cover, you also have the option of rounding up the number of shares to 82 shares.
Don’t forget to make sure you have enough cash to cover the trading commission when buying. The trading commission will be deducted from your cash in the account.
At this point I have the:
Stock ticker symbol – XRB.TO
Number of shares to buy – 81
Approximate share price – $23.12
Enough cash in the proper currency in my account – $1886 of Canadian bucks.
Now I know exactly what I’m buying and how many shares. I’m still not ready to place a trade, because there a few more things to cover.
6) Market order vs limit order
When placing a purchase order, you can indicate that it be placed as a “market” order or a “limit” order.
A market order means you don’t put any conditions on the price of your order. Once you place the order, the purchase will get completed (or filled) as soon as enough shares are offered on the exchange. For larger companies and high volume ETFs, this will happen instantly.
A limit order means you specify an upper limit for the price of the shares. For example my future XRB shares are trading at $23.12. If I put a purchase order with a limit of $23.05, the order won’t get filled until the market goes down a bit and someone accepts an offer of $23.05 for their XRB shares.
On the other hand, I might place a purchase order with a limit higher than the current market price – say $23.30. The reason I would do this is to avoid the possibility that trading is light and you end up buying shares at a rate above the market. This is practically impossible if you stick to liquid, high volume stocks that have many shares trading at any given time. Note that in this case, your order will still be traded at “market” as long as your limit is above the market price. So putting a limit of $23.30 does not mean I’m offering to pay $23.30 for XRB shares. It just means I won’t pay more than $23.30 for the shares.
I would strongly urge that you don’t place orders when the exchange is closed, unless you put a limit on the order.
In theory, limit orders are safer than market orders. However, I’ve completed a fair number of market orders and limit orders and never had a problem with either. My current process is to always place a limit order just to be on the safe side.
7) Log into your discount brokerage account
At this point we’re ready to log in. With Questrade, you have to log into your main account at myquestrade.com and then log in to your trading platform. Other discount brokerages will have just one login.
Before I enter the order, I want to make sure I have enough Canadian dollars to fill the order. Check with your brokerage to find out what happens if you make a purchase without enough cash in that currency.
To check my Canadian cash balance, I click on the YOUR ACCOUNT tab and then “Balances”
I recently converted a lot of Canadian dollars to US dollars, so I don’t have enough for the trade. No worries, I’ll do the trade anyway and Questrade will automatically convert the proper amount of US$ to fund the order. At Questrade, this currency conversion costs 0.5% in a registered account, so you don’t want to be converting more than necessary. Other brokerages typically charge around 1.5% for currency exchange costs.
Once I’m in the account, I select MY PLATFORMS and then Login to equities platform. If this is your first time, you have to select which trading platform you want to use. I use QuestraderWeb which is the free trading platform.
Now I choose “QUICK ORDER ENTRY”. The form on the right hand side is used to enter an order.
I’m going to break up my purchase order, so I can show one purchase with a market order and one with a limit order.
How to enter a market order
For my market order purchase I’ll fill in the fields like so:
Symbol = XRB.TO
Quantity = 41
Transaction = Buy
Order Type = Market
Duration = Day*
Preferred ECN = AUTO
*Duration – “Day” means that the order will only exist until the end of the trading day. If it is unfilled at that time, then it disappears.
Market purchase order
The next step is to verify the share price by clicking on the QUOTE button at the bottom of the form.
Now we see a pile of new information on the quote screen.
Quote feature
The main info I’m interested in is the Last Price which is $23.12. This hasn’t changed since I did my original share calculations.
Next step is to click on PREVIEW ORDER
Preview order
This is your last chance to verify the order information. Everything looks good, so now I will click on “SEND ORDER”.
The order was filled (or executed) instantaneously at $23.12.
Order was completed.
If I want to review the order details, I can go back to my main account page and check the “View Messages” and “Detail”.
Order details
From this I can see the commission ($4.95) and the trade total of $929.75 which represents the share cost and commission.
Some brokerages (including Questrade) add another fee to the commission called ECN fees. They are fairly small, but if you are doing high volume trades, it can be a factor.
When I look at the execution detail after the business close, I see there is an ECN value which has been charged as well. The ECN costs at Questrade are $0.0035 per share for XRB. My 41 share trade has an ECN fee is 14.35 cents which brings my total cost to $5.10.
ECN fees
How to enter a limit order
Most of the steps for a limit order are the same as for a market order.
Start with “QUICK ORDER ENTRY”. The form on the right hand side is used to enter an order.
The key difference with a limit purchase is that I will be specifying a price which represents the highest price I’m willing to pay for the stock. In the case of XRB, the current market price is $23.12. If I select a limit that is higher than $23.12, the order will likely get filled at market (just like my market order) and the limit will just be there for protection.
Another strategy is to put a limit price that is lower than the current market price and hope that the market drops and you can buy at a lower price. In this case you will have a pending order which can be cancelled. This is a good scenario for using the “GTC” or good till cancel order type so that the order doesn’t get cancelled at the end of the day.
I like to select a limit price that is just above the market price – perhaps 1 or 2% higher. In this case I’ll try setting the limit at $23.20 which is just above the market price of $23.12. If the stock is more volatile you might have to set a higher limit because the stock could jump past the limit before you place your order.
It’s not a bad idea to monitor the price movements of a stock for a little while to get a feel for the volatility. You want to set the limit high enough about the regular price points in order for the order to get filled quickly. For example if you check the price of a stock every 60 seconds and see the following: $23.12, $23.09, $23.14, that stock price is not moving around much and you can probably set a price of $23.20 or $23.30 and be fairly assured it will be filled.
For my limit order purchase I’ll fill in the fields like so:
Symbol = XRB.TO
Quantity = 41
Limit Price = $23.20 Note, you have to select the order type of “Limit” before this field becomes active.
Transaction = Buy
Order Type = Limit
Duration = Day
Preferred ECN = AUTO
Limit purchase order
The next step is to verify the share price by clicking on the QUOTE button at the bottom of the form.
Now we see a pile of new information on the quote screen.
Quote
I can see that the last price for XRB has dropped from $23.12 to $23.05.
Next step is to click on PREVIEW ORDER
Preview limit order
This is your last chance to verify the order information. It looks good, so now I will click on “SEND ORDER”.
The order was filled (or executed) instantaneously at $23.09.
Limit order completed
From this I can see the commission ($4.95) and the trade total of $951.64 which represents the share cost and commission.
Some suggestions
It is a bit stressful to be doing your first trade with a lot of money – I suggest starting off with a small trade or two just to get familiar with the process. Yes, you will be burning a couple of commissions, but trust me – it’s worth it.
Another suggestion is to see if your brokerage offers a “test” area where you can place dummy trades to get familiar with the trading platform. Questrade offers a free trading platform trial which you can access to try some test trades.
Another option is just to use cheap index funds – they are a heck of a lot easier!
Please let me know if you have anything to add to this information based on your experience with different brokerages.
