Tag Archives: trading

Passive Income Part Five – Trading

This is the fifth and penultimate post on investing for passive income. Now that you know all about investing, costs, risk, and have opened an account, it.s now time to go live: trading.

Trading – Finding a Stock’s Ticker

Each stock or ETF (exchange traded fund) has a unique ticker that identifies it. A ticker is a three letter combination. In a previous post, it was suggested a portfolio could be built out of two ETFs: one holding a basket of stocks and one holding a basket of bonds. The bond ETF is Vanguard.s Canada Aggregate Bond Index ETF. If you click the link, it takes you to Vanguard.s site and you can see that the three letter combination which identifies it is called VAB. The stock ETF is BMO.s S&P/TSX Capped Composite ETF. Clicking the link takes you to the Bank of Montreal.s site which identifies the stock.s ticker as ZCN. Remember VAB and ZCN.

Trading – Placing the Buy Order

We.re almost at your first trade! Log in to you account. You should see in one of the sidebar items the option to place orders. In TDDI it looks like this and you want to select ‘Stocks’ under ‘Order Entry’:

TDDI Sidebar

TDDI Sidebar

In Questrade you simply search for a stock by punching it.s three letter ticker into the little box. I.ve added .to to the end of vab to let Questrade know that vab trades on the Toronto exchange. Once the search is complete, there.s the option to ‘buy’ with the green button on the bottom:

Questrade Search

Questrade Search

The next step is to place the order. With TDDI after you select ‘Stocks’ below ‘Order Entry’, the following menu pops up:

TDDI Order Entry

TDDI Order Entry

In ‘Action’, select ‘Buy’. In quantity, enter in how many shares you want. Put the ticker symbol ZCN into the ‘Symbol’ field and select ‘Canada’ as the market. Unlike Questrade, you don.t enter in the .to after the ticker. Hit ‘Get Quote’ and it will give you the quote for what the bid and the ask prices are. The bid is what the market will give you if you sell. The ask is what the market will sell to you for if you.re buying. The spread is the difference between the bid and ask prices and represents the compensation the market makers get to provide liquidity. Here.s how it looks once everything.s filled in:

TDDI Order Entry Filled Out

TDDI Order Entry Filled Out

Notice under ‘Price’ that the order is set up as a buy order with a ‘Limit Price’. Always use limit prices when placing orders. A limit order instructs the brokerage that this is the maximum you are willing to pay. I usually set the limit price at the ask price. So, in this example, the ask price is $20.11 (which says the market will sell to you at $20.11) and I.ve set the limit (the maximum I.m willing to pay) at $20.11. If you do a market order (i.e. no limit), the order has a very small chance of filling above the current ask price (i.e. you pay more than you expect).

25 shares at $20.11 is going to cost $502.75. Make sure you.ve got the funds. Oh, and TDDI will charge you $9.99 to execute the trade so you need available $512.74. Because trades cost money, generally, on TDDI I.ll wait until there.s $2000 or so before I do a trade. Other people wait till they have 4 or even 10k to do a trade. It.s a matter of personal preference but you want to minimize your expenses.

Double check everything and then hit ‘Buy’. There you go, that.s trading on TDDI! It seems like a lot of steps but it.s an easy process.

Turning now to the trading sequence for Questrade. If you hit ‘Buy’ on the little green button once you.ve found your stock, a menu pops up:

Questrade Filled In Order Entry

Questrade Filled In Order Entry

This time we.re using VAB. Since the ask is at $25.56, we.re going to place a limit order at the ask price of $25.63. Quantity is 100 so this trade will cost you $2563.00. Trading ETFs is free on Questrade (this is one of the reasons why it.s nice to have a Questrade account). But they do ding you a little bit to ‘remove liquidity’. The charge is 0.0035 cents per share. So this trade will cost you a whopping 35 cents! So make sure you have $2563.35 in your account. Review everything and then hit ‘Send Order’. In half a second, it will send confirmation that your order has been routed and that.s it.s filled. That.s it! Isn.t trading easy as 1-2-3?

Next up will be a final post with some investment FAQs and my investment philosophy. Until next time, I.m Edwin Wong and writing this blog has been a happy diversion from writing the final chapter in the endless saga of Doing Melpomene’s Work.