Opening Your Online Brokerage Account Primer (2024)

Opening Your Online Brokerage Account Primer

Buying and selling Exchange Traded Funds (ETFs), owning your individual stocks or other securities through an online brokerage firm is not difficult work but this can be very intimidating work for new investors.

That said, this post will absolutely help you open your online brokerage account.

Thankfully, beyond this post, many online brokerages have excellent Frequently Asked Question (FAQ) forums not to mention a team of Customer Service Representatives ready by the phone and via email to answer any questions new or experienced investors might have.

For today’s post, I thought I would share some considerations and prime you about opening your online brokerage account – thanks to a recent reader question.

Consideration #1 – Do you even need an online brokerage account?

You might already be aware these types of accounts were established to allow investors to buy and sell securities on their own. Before you go any further I suggest you figure out if managing your own securities is the right step for you. It might not be. Do-It-Yourself (DIY) investing takes some effort, even for Couch Potatoes, so consider what your financial goals are, what your risk tolerance is and the types of investments you want to hold.

Should you become a DIY investor? I think you should definitely consider it!

If you don’t know the answers to these questions yet, best seek some professional financial advice to get you started or at very least sit down and read some personal finance books. Opening any online brokerage account before knowing these answers is like buying a plane ticket before you know any of your travel plans.

Consideration #2 – What types of accounts?

New investors need to understand there is a cascade at work when it comes to investing. What I mean is this: there are many major discount brokerages in Canada (names to be provided later) and these financial institutions have many different accounts you could own:

• Registered Retirement Savings Plans (RRSPs)
• Tax Free Savings Accounts (TFSAs)
• Registered Education Savings Plans (RESPs)
• Self-Directed Non-Registered Investment Accounts and more.

It is within these accounts where you can hold a diverse mix of investments: mutual funds, ETFs, stocks, Guaranteed Investment Certificates (GICs), bonds and even cash. And finally within the investments themselves there can be diversification: some ETFs for example hold thousands of companies (this is a good thing). I would suggest to take some time to read up about the different types of accounts offered by many major discount brokerages, revisit what they offer and more importantly what they don’t offer as part of their terms, conditions and services and from there determine what accounts might be right for you.

Sometimes, just starting with one account like a Tax Free Savings Account (TFSA) may be a good way to get your feet wet. Here is some additional reading for you:

TFSA 101

RRSP 101

For most younger investors just starting out – consider opening a “self-directed” TFSA or RRSP or both. This way, you can control the stocks, ETFs, bonds, GICs and other to buy and hold.

Consideration #3 – Narrowing your choices – comparing brokerages

So before this post I will assume what your financial goals were, what your risk tolerance was and the types of investments you wanted to hold. As part of the guidance within this post you learned a bit about the accounts you can open. Now you need to figure out the best financial institution for the accounts that meet your needs – this is because not all online brokerages are created equal. I won’t go into details at this point, the expert writers at MoneySense have already done a stellar job of that outlining “the best” online brokerages in Canada for a few years now.

Here is some information below to help your research:

Best Brokerages 2019

Best Brokerages 2020

Not all brokerages are created equal…

What I would highlight from my personal experiences are these brokerage considerations:

• Be mindful of the account fees – fees matter. Although many major discount brokerages in Canada have done a great job at lowering or eliminating annual fees for accounts that do not have a modest balance (say $5,000 or $10,000 invested) or no minimums for TFSAs, the account fees across the brokerages are different. So, do some research on that. Make sure you ask the following questions of your brokerage:
  • What are the account minimums to waive any fees for my TFSA? RRSP? RESP? RRIF?
  • Will you at least waive fees for the first year or so? If not, why not?
• Be mindful of the trading fees – excessive trading can kill portfolios. Although many major discount brokerages in Canada have done a great job at lowering their transaction costs to buy or sell securities, the trading fees across the brokerages are different. For example, you can buy any Canadian or U.S.-listed ETF from Questrade commission-free, whenever you like. The same cannot be said for other online brokerages. So, do some research on that. Make sure you ask the following questions of your brokerage:
  • What are the fees for buying or selling ETFs?
  • What are the fees for buying or sell stocks?
  • How do those fees come out of my account?
• Be mindful of the foreign exchange fees – brokerages take a healthy cut. Although many major discount brokerages in Canada have introduced U.S.-dollar accounts, some brokerages remain in the Stone Age and do not allow you to hold U.S.-dollars inside some accounts. So, while you can buy or sell U.S.-listed ETFs or U.S. stocks in your RRSP or TFSA, the currency will be converted automatically to Canadian dollars and because of that you’ll be charged a pricey foreign exchange fee on every transaction. So, do some research on that. Make sure you ask the following questions of your brokerage:
  • Can I have both U.S.. and Canadian-dollar TFSA or RRSP accounts? (Yes, you should get those.)
  • Can I buy Canadian inter-listed stocks and “journal them” over to the USD-side to save money on foreign exchange costs? If so, how do I do that? Can you show me how? Read up about Norbert’s Gambit here.
  • What is the best way to contribute to these accounts? Can I set up contributions as an automatic bill payment? If so, can you show me how?
• Be mindful of the brokerage that can DRIP (Dividend Reinvestment Plan) – DRIPs can help put your retirement plan on autopilot. Although many major discount brokerages in Canada allow you to reinvest dividends and distributions for every security you own some don’t. So consider if you want to leverage DRIPs for your investments and confirm with the brokerage they offer this flexibility for the account(s) you’ve selected.

You can learn more about DRIPs on my site here.

I can appreciate for new investors this information might be overwhelming. I’ve given you lots to think about, there is a lot to think about.

This is why DIY investing is not for everyone.

If you are considering the DIY route hopefully these considerations and questions to ask your discount brokerage helped.

Thanks to my reader for this blogpost idea and should you have more specific questions don’t hesitate to comment or drop me an email, I will answer your questions as best I can. Alternatively I might just turn any comment or email into another article on this subject.

Oh, lastly, as promised “Google” this list of online brokerages for your research and check out any links above.

• RBC Direct Investing
• BMO InvestorLine – see my link below where I can save you money!
• CIBC Investor’s Edge
• TD Direct Investing
• Scotia iTrade
• Questrade – see my Deals page!
• National Bank Direct
• Qtrade Investor
• Virtual Brokers
• Laurentian Bank Discount Brokerage
• HSBC InvestDirect
• Credential Direct
• Desjardins Online Brokerage

Better still, consider my Deals page where I have promo codes to use for Bank of Montreal investing! Using my promo codes I can save your hundreds if not thousands of dollars over many years of investing as your go-to discount brokerage.

Happy investing folks and thanks for reading!