Education Centre

Learning path for self-directed investors who want to know more about financial markets and investing

Investment Products

There is a vast array of products to help you diversify your portfolio according to your investment objectives. But before selecting them, it is important to understand their respective characteristics and the different ways in which they can be traded.

Stocks

A stock is a security that gives you a share of ownership in a company. It entitles you to certain rights on the corporate assets and, possibly, a portion of the benefits, which are distributed as dividends.

Stocks are important to your portfolio diversification strategy. They provide a higher return potential than fixed-income securities and money market investments, but they also carry a higher level of risk, depending on the stock you choose. Investing in this asset class can be a tremendous source of growth and income, especially if you select dividend-paying stocks.

To learn more about stocks, please visit our dedicated page.

Exchange-traded funds

Want to learn more about ETFs? 

Check our dedicated page

ZERO COMMISSIONS WHEN YOU TRADE WITH NBDB

National Bank Direct Brokerage is making it even easier for you to access exchange-traded funds (ETFs), with zero commission on all Canadian ETFs at all times, no matter how many trades you place.

Why pay commissions when you can trade for free at NBDB?

Learn more about ETF pricing 

    

Finding an ETF market value

ETF quotes can be read in the same manner as stock quotes. They are available via the ETF Centre in your brokerage account, in newspapers (business section), on the Internet (e.g. brokerage firm websites) or in an app on your smartphone.

Example of an ETF quoted on the ETF Centre via your NBDB trading platform

ETF center National Bank Online Brokerage

                       

In this example, the XIU ETF is trading at $17.87. This means that the last trade for this ETF was executed at that price. To the right of that number, you can see the increase of $0.11 (or 0.619 4%) since the opening of markets that day. The trade volume of 413,216 represents the number of XIU ETFs traded since the opening of markets on that particular day.

You will also find more detailed information about the ETF, such as the opening price, the high (day and year) and the low (day and year).

The most important information for a trade is the bid/ask price. If you want to purchase this ETF, you must pay the ask price; if you want to sell it, you will obtain the bid price. The quote that is shown here ($17.87) is therefore not necessarily the price you will receive (or pay).

The different types of ETFs

Investors usually use ETFs for two reasons:

  • As a passive way to invest over the long term
  • To gain exposure to a short-term trend in a given sector or index (most often used by active investors)
There are therefore several types of ETFs, depending on the strategy you wish to implement. The main ones are:

Simple ETF

Simple ETF typically mimics an index called the benchmark. The return of the ETF is therefore correlated to that of the underlying index.

This type of ETF is designed for mid- to long-term investing.

Inverse ETF

This ETF seeks to generate returns that are equivalent to 100% of the opposite of their underlying benchmark's daily return.

It is designed for very short-term investment strategies.

Leveraged ETF

Leveraged ETF seeks to double the daily return of an index.

Note that inverse ETF can also be used as leverage. In such cases, it would seek to double the opposite of the index's daily variation.

This fund is designed for very short-term investment strategies and is inappropriate for long-term investing.

Actively managed ETF

The objective of an actively managed ETF is similar to that of a mutual fund: it seeks to outperform its benchmark.

ETF investors tool kit

iShares® by BlackRock® has designed an Investors Tool Kit to help you learn more about the benefits of using ETFs and how they can be a key part of your portfolio.

Explore the world of ETFs via iShares® by BlackRock®

Trading ETFs

It's easy to trade ETFs online with your National Bank Direct Brokerage account.

  1. First, click Transactions — Stocks. A transaction page will open.
  2. Then, select the transaction you wish to carry out (buy or sell) and indicate:
  • The number of shares of the ETF (not the amount you’re investing)
  • The ETF symbol (e.g., XIU)
  • The stock market (Canadian or American)
  • The price (limit or market price)
  • The expiry (if limit price) and restriction
  1. Then, click Submit.
  2. Check the information to make sure it is correct and click Confirm.
  3. Once your order has been submitted, you may view it under Transactions – Current Orders and Instructions.
Mutual funds

A mutual fund is the pooling of several investors’ assets to achieve a specific set of objectives. When you invest in a mutual fund, you purchase a share of the fund; this share is referred to as a unit.

Mutual funds invest in various securities, including common and preferred shares, debt securities such as bonds and debentures, as well as money market instruments like Treasury Bills. Each mutual fund is assigned specific characteristics and goals that dictate its underlying investments. Professional managers make the decisions concerning the management of assets held in the fund.

In order to choose the right mutual fund, it’s important to evaluate the Management Expense Ratio (MER), which allows you to determine in which proportion the assets held in the fund are used to cover operating expenses each year. In Canada, the leading mutual fund companies offer their products across three MER structures: front-end load funds, back-end load funds and no-load funds.

To learn more about mutual funds, please visit our dedicated page.

Bonds

Bonds are investment products issued by a company or a government. They entitle you to a debt claim over the issuer. In other words, bonds are loans that give you the right to a coupon, i.e., a percentage of interest based on the bond’s nominal value, on the interest rate calculated on the nominal value, as well as on the repayment terms.

For example, a $10,000 investment in a provincial bond offering 3% interest will yield $300 in interest income each year.

Bonds are typically used by investors seeking some degree of capital preservation, as well as an annual or semi-annual return.

To learn more about bonds, please visit our dedicated page.

Stripped coupons

Stripped bonds are bonds where coupons are detached from the principal portion of a bond in order to create two separate products. As such, a bond investor can decide to detach the underlying coupons at a precise moment to create two distinct products: the principal (face value) and the coupon (interest payments).

Residual bonds and stripped coupons are purchased at a discount and redeemed at their full nominal value at maturity, although they may be sold in whole or in part before maturity. They do not provide regular interest payments, as all interest is settled at maturity. When purchasing stripped coupons from a cash account, you must declare a portion of the interest every year, even if you do not receive this amount until maturity.

You may sell your coupons on the secondary market before maturity, in which case they would trade at their current market value. Since the market value fluctuates with the markets and interest rates, there is no way to predict the return or the proceeds of the sale before maturity.

To learn more about stripped coupons, please visit our dedicated page.

Exchange-traded debentures

Debentures are debt instruments that are not guaranteed by tangible assets, but rather by the credit rating of the issuing company. As such, debentures offer a potentially higher interest rate than their bond counterparts.

Traditional debentures are traded on the bond market. However, in certain cases, a company may choose to issue a debenture on stock markets. This is referred to as an exchange-traded debenture.

To learn more about debentures, please visit our dedicated page.

Guaranteed Investment Certificates (GIC)

Guaranteed Investment Certificates (GICs) are investments that allow you to preserve and grow your invested capital.

There are two main types of GICs: conventional and market-linked.

Conventional GICs, also called term deposits, offer a guaranteed rate of return that is known in advance and usually determined by maturity, which can vary between 30 days and five years. Your principal and interest payments are guaranteed. GICs can be redeemable or non-redeemable before maturity.

Market-linked GICs offers capital protection and market exposure; the return is therefore not known in advance. Since this product provides market exposure, its return potential is greater than that of a conventional GIC.

To learn more about GICs, please visit our dedicated page.

Linked notes

Principal-protected notes are debt securities that offer a principal-repayment guarantee at maturity, based on the issuer’s credit rating. The return at maturity, if applicable, depends on the performance of the underlying asset, which can also be a group of various asset classes (e.g., stocks, indices or funds), as indicated in the prospectus. It is usually possible to sell a principal-protected linked note before maturity by making it available on the secondary market.

This type of investment is not eligible for deposit insurance under the Canada Deposit Insurance Corporation (CDIC).

Linked notes are ideal for clients who do not need liquidity over the short term, but are looking for ways to avoid the downside risks of the underlying assets.

To learn more about Linked notes, please visit our dedicated page.

Non-principal protected notes

These notes are investments that offer exposure to their underlying assets (e.g., stocks, indices, funds), but with no guarantee that the principal will be repaid at maturity. Investors may therefore receive an amount that is less than their initial investment. In return, they offer greater return potential based on the return of the benchmark portfolio.

The final return is determined by the performance of the underlying assets, as mentioned in the prospectus. It is usually possible to sell a non-principal protected note before maturity by making it available on the secondary market.

To learn more about linked notes, please visit our dedicated page.

Options

Options can help you manage risk (protection) or increase the value of your portfolio (income). An option contract gives you the right, but not the obligation, to purchase or sell a specific number of a security, at a pre-determined price, within a specified timeframe. Usually, an option contract represents 100 shares.

A call option gives you the right to purchase the underlying asset, while a put option gives you the right to sell the asset. European options allow you to exercise your right on a specific date, whereas an American option allows you to exercise your right at any time before the expiry date of the contract.

To learn more about options, please visit our dedicated page.

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