10 Essential Lessons for New Investors

Taking on the investing world can be an exciting (and nerve wracking) time. While a trading account can bring a sense of ownership and control over your investing future, that doesn't mean you won't have moments of uncertainty or self-doubt. It's natural…and can help keep any brash overconfidence in check when needed.

Still, there are some key things a new investor should know upfront that can help make the investing journey a little smoother. Let's face it, the choices out there can be daunting. But above all else, you should always keep in mind that you can start where you're comfortable and learn as you go.

Here are 10 key things to know as you set off on your journey as a do-it-yourself investor:

1. There's more than one order type.

Market, limit, stop, stop limit….there's more than one choice when it comes to entering your order. Understanding each is important, but the two main choices – market and limit – are a good place to start. Briefly, with a market order you pay (or receive) the best price available at the time your order is received. If the market is closed, you'll get the market price the next trading day. A word of caution: the opening price one day can vary greatly from the closing price the day before. Limit orders let you set the maximum price you're willing to pay when you buy a security, or the minimum price you're willing to accept if you're selling. Limit orders give you more control, while market orders tend to be the fastest, surest way to get your order executed.

2. Understanding trading commissions.

DIY investing means you can buy as many or as few shares as you choose, which is why it's important to keep commissions in mind as they can factor into your overall return. The percentage of your commission will depend on the total value of your trade. It can be helpful to calculate that percentage to give you more insight into your costs.

3. Trades need to settle.

Markets have rules for timing payment and delivery of assets. The rules are based on day of trade ("T") plus ("+") the number of business days for delivery. Typical settlements are:

Stocks, majority of ETFs and mutual funds: generally T+2

Bonds: generally vary between T+1 and T+3

Money market funds: generally T+1

GICs: generally T+0

Options and some ETFs: T+1

For example, if you buy a stock on Monday (“T"), it must be paid for by Wednesday (“T+2"). It's important to ensure funds are available on settlement date and in the right currency to avoid unforeseen charges.

If selling on Monday, your money would be available for withdrawal two days later (unless you have a margin account).

4. There are ways to save on foreign exchange.

Many direct investing accounts have two currencies: U.S. and Canadian. And with a range of choices of Canadian and U.S. stocks, options, preferred shares, new issues, rights and warrants available, it's key to know which market you're trading on. For example, stocks listed in the U.S. must be bought and sold in U.S. dollars.

So, if you buy a U.S.-listed stock in your Canadian account, you'll be charged in Canadian dollars — but at a foreign-exchange rate since the stock is denominated in U.S. dollars. If you then sell it from your Canadian account, the U.S. funds you receive will be converted back to Canadian dollars — which would mean a second foreign-exchange transaction. To avoid that, it's possible to convert money to U.S. dollars and then buy and sell on the U.S. side of your account. 

5. Leverage can be your best friend, until it isn't.

First off, leverage (or margin) means borrowing money with the aim of increasing your returns. A margin account lets you borrow money against the investments in your account. Leveraged investing allows you to buy a larger number of shares than you would otherwise be able to and, when market conditions are favourable, you may generate a larger return. That's because you pay back the amount borrowed, plus interest, but keep any investment earnings. But, it's key to remember that you owe the money you borrowed whether an investment pays off or not. Investing with borrowed funds can magnify returns but can also magnify losses. Find out more in Understanding Margin Accounts.

6. Research can be key.

With so much choice, new investors can often buy an investment they don't quite understand — which can mean taking on more risk than wanted or expected. Research is important when choosing investments that are right for you. For companies, annual and quarterly reports can give you a sense of a firm's financial position and detailed quotes can give you insight into all kinds of information — from dividends to beta to price-to-earnings ratios to help you with research.

7. You can march to the beat of your own drum.

It's easy to get caught up in the hype of the latest investing craze – in fact, it's often why many investors open an investing account in the first place. But remember, the latest hot stock may be right for your friend or colleague, but not necessarily for you. It's important to not let greed surpass due diligence. You can't control the markets, but you can control impulse.

8. Checking order status is a good habit.

It's important to verify the status of your order as simply submitting an order doesn't guarantee that your order has been filled.

To check the status of your orders, go to "Place an Order" on the site menu and click "Check My Orders." On your Order Status tab, orders are shown as either Filled or Open. If the status of your order is Open, it means that your order is currently active but has not yet been executed in full.

While you can always check your portfolio holdings to see how many shares you have, it's a good habit to check your orders — it takes just seconds to verify the status of an order before ending your online session. It's also the first place you will see if a trade is rejected. Orders can be rejected for a number of reasons, from trading halts to invalid price increments.

9. If you're not sure, you can ask.

Although your investing decisions are up to you, there is client support to help you understand concepts or go over technical procedures or issues. If you have a question and can't find the answer, call your brokerage's support team. It might save you a headache later.

10. Trust your instincts.

Some people only choose investments they feel good about. For instance, an ecologically minded individual may avoid industries considered non-environmentally friendly. Others investors may have few qualms about what they buy, choosing to follow more of a "buy the rumour, sell the news" mantra. Whatever your approach, you're more likely to trust your decision and weather price fluctuations if it's an investment you believe in, backed by an understanding of your time horizon and how much risk you're comfortable with. But remember, there's no substitute for learning more about what you're buying (see #6 above for a refresher!).

This article was last updated in December 2021.