The Canadian stock market has until recently been a less significant stock market compared to other world stock markets. Today, the Toronto Stock Exchange (TSX) lists more oil and gas and mining companies than any other stock exchange, and it ranks 8th largest among world stock markets in terms of market capitalization.
If you reside in the U.S., you can buy Canadian stocks through American Depository Receipts (ADRs), which allow U.S. citizens to own foreign stocks. You can buy or trade 103 of the largest Canadian corporate stocks on the New York Stock Exchange (NYSE) and another 73 stocks on the Nasdaq exchange.
For Canadian residents and citizens, buying Canadian stocks can be done through a reputable regulated Canadian stockbroker or an international multi-asset broker such as Interactive Brokers. An international broker would also be your best choice for buying Canadian stocks if you reside outside of the U.S. or Canada.
Transactions on Canadian stock exchanges involve using Canadian dollars, so you should have an idea of how foreign exchange works and consider the costs of currency conversion when trading Canadian stocks if you do not already own that currency.
The Canadian dollar (CAD) is the worldâ€™s 5th largest reserve currency and accounts for 2% of global Central Bank reserves as of December 2019. Nicknamed the â€œloonie,â€ the Canadian dollar also ranks as the 7th most actively traded national currency worldwide.
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About the Canadian Stock Exchange
Canadian stock exchanges include the Canadian Securities Exchange (CSE), The Montreal Exchange (Bourse de MontrÃ©al), Nasdaq Canada and the Toronto Stock Exchange (TSX). The TSX also incorporates both the TSX Venture Exchange and the TSX Markets and Natural Gas Exchange (NGX).
According to the Canadian financial markets model, the CSE conducts a continuous auction market for the issues it lists, in addition to issues listed on other Canadian stock exchanges.
The exchangeâ€™s low latency and high-performance trading system ranks orders by price, broker and time.â€¯ Also, the CSE regularly adds helpful services for traders that include routing services and risk management that also assist brokers in meeting their client and regulatory obligations.
Keep Up With Current Events in Canada
If you are an American trading on the Canadian stock market, you may not be aware of current events in Canada that affect stock prices. Do your best to keep up with the news in Canada by checking the news tab in Google or reading major newspapers throughout the country (Toronto Star, Montreal Gazette, Vancouver Sun, etc.)
There are television channels in Canada dedicated to financial news. If you visit their websites often, you can learn how the Canadian economy is performing and use that information to invest in Canadian companies or stocks.
Trading Stocks in Canada
If you reside in Canada, you may want to enlist the help of a Canadian financial advisor. Or, you can open an account with a domestic stockbroker such as Wealthsimple, as an example. In addition to providing commission-free stock transactions for Canadian stocks, you have several different options linked to your trading account:
- Personal taxable account: The easiest type of account to open, this account is taxable and immediately applies taxes to interest, dividends and capital gains. Withdrawals are easy to make, so this account would not be appropriate for your primary retirement account.
- Tax-free savings account (TFSA): This type of account lets you invest some of your funds tax-free, in contrast to a regular savings account. The account also has specific amounts that can be contributed every year, as well as a limit on how much can be withdrawn. The TFSA allows you to select your investments from a range of financial instruments that include stocks, exchange-traded funds (ETFs), guaranteed investment certificates, bonds and cash savings.
- Registered Retirement Savings Plan (RRSP): Known as a tax-advantaged account, the RRSP lets Canadian citizens invest for their retirement. This type of account defers all tax payments on deposits until after the account holder retires. Tax-deferred does not mean tax-free, however, and contributions to this type of account are typically limited to the lesser of a percentage of your past yearâ€™s income or a given maximum amount. For the 2019-2020 tax year, that income percentage was 18% and the maximum amount was $26,500 CAD.
These account options are only available to Canadian citizens and generally have minimum deposit and withdrawal amounts. For example, most Canadian brokers have a minimum deposit requirement to open an RRSP account of at least $25,000 CAD and require $10,000 CAD for non-registered accounts. Also, Canadian brokers generally charge an annual fee for accounts that fall below a certain amount balance.
If you reside outside of Canada, you can buy and sell Canadian stocks and pay taxes on your investments that are appropriate for the country you reside in. To avoid any surprises when filing your taxes, be sure to check with your accountant regarding your tax obligations when trading in Canadian equities.
To begin buying Canadian stocks, you can follow the directions outlined below.
- Find a Reputable and Suitable Stock Broker.
As a Canadian citizen, you qualify for the specialized tax-deferred types of accounts listed above. You can choose from a large selection of Canadian stock brokers that offer these types of accounts and gain access to all Canadian stock markets.Â
If you plan to select a Canadian broker, make sure they are duly regulated and have oversight from the Investment Industry Regulatory Organization of Canada (IIROC) or the Canadian Investor Protection Fund (CIPF). These regulators protect investors in the event of fraud or bankruptcy of the broker.Â Â
If you live outside of Canada and the U.S., your best bet might be to open an account with an international broker like Interactive Brokers or Saxo Bank. Other major international brokers that can give you access to trade Canadian stocks directly on Canadian stock exchanges include Questrade and TD Direct Investing.Â Â
Furthermore, many major U.S.-based stock brokerages let you trade TSX listed stocks and also let you trade ADRs on the largest Canadian corporationsâ€™ stocks.Â
- Open an Account.
Once youâ€™ve decided on a broker that satisfies your needs as an investor or trader, you can open and fund a live account. Expect to provide proof of your identity and address when doing this. You may also need to have a minimum amount to deposit to meet your chosen brokerâ€™s requirements.Â
- Access your Brokerâ€™s Trading Platform.
You should now prepare to make transactions by accessing or downloading your brokerâ€™s online trading platform and then learning how to use it. Many brokerages offer demo accounts that allow you to trade without committing any of your funds so you can test your strategy in a real-time environment and practice using the brokerâ€™s platform.Â
- Plan your Trade.Â
Having an idea of which Canadian stocks to buy would be the next logical step for traders and investors. Having a trading plan or investment strategy makes a lot of sense before getting involved in any financial market.Â
Keep in mind that the foreign exchange element of trading in Canadian dollars may affect your investments, especially if you plan on working with a substantial amount of money. If you have no investment or trading plan, then you could devise certain fundamental criteria for buying stock that might involve reviewing parameters like earnings growth and the price/earnings ratio. You can also perform technical analysis on the stockâ€™s price chart and use technical indicators to help you better time your entry into a stock position.Â
Another option that can especially suit inexperienced traders without an existing strategy consists of using a copy trading platform like eToro, for example. Although this online broker does cater to U.S. residents, it does not currently accept Canadians as clients. As the name implies, copy trading involves copying the trades of successful traders and investors in your own account, although you would have to research which traders specialize in Canadian stocks.
- Buy Canadian Stock.
You should now have an open account and be ready to begin buying Canadian stocks, so you can enter your 1st transaction.Â
Best Online Brokers for Trading in Canada
The best online broker for Canadian stocks will depend in large part on whether youâ€™re based in Canada or abroad. While Canadian brokers will suit those living in Canada well, a good international broker would probably be a better choice for those based outside of Canada, and those based in the U.S. can access Canadian stocks through ADRs or ETFs. The table below illustrates our picks for the best online brokers for trading in Canada.
Global and Active Traders
get started securely through Interactive Brokers’s website
Global and Active Traders
1 Minute Review
Interactive Brokers is a comprehensive trading platform that gives you access to a massive range of securities at affordable prices. You can buy assets from all around the world from the comfort of your home or office with access to over 135 global markets. Options, futures, forex and fund trading are also available, and most traders wonâ€™t pay a commission on any purchase or sale.Â Â
IBKR is geared primarily toward experienced traders and investors but now with the availability of free trades with IBKR Lite, casual traders can also acclimate to IBKRâ€™s offerings.
- Access to foreign markets
- Detailed mobile app that makes trading simple
- Wide range of available account types and tradable assets
- Comprehensive, quick desktop platform
- Mobile app mirrors full capabilities of desktop version
- Access to massive range of tradable assets
- Low margin rates
- Easy-to-use and enhanced screening options are better than ever
- Beginner investors might prefer a broker that offers a bit more hand-holding and educational resources
Get started securely through Questrade’s website
1 Minute Review
Questrade, a low-cost Canadian online broker born in 1999, has grown up to become the largest independent fintech in Canada. It provides self-directed and managed investing and trading in diverse asset classes such as equities, bonds, forex, commodities, options, and ETFs. Competitive pricing, ease of use and the availability of multiple trading platforms is a definite boon for those in the land of rad hockey skills, icebergs, and Lake Louise.
- Active traders
- Cost-conscious clients
- ETF traders
- Cheap commissions, especially ETF purchases
- Active trades are entitled to rebates
- No annual maintenance fee
- Broad range of asset classes
- Practice accounts are available
- Available only to Canadian residents
- An inactivity fee of CA$24.95 per quarter kicks in if a trade hasnâ€™t been placed in a quarter or the account balance falls below CA$5,000.
- Checking account funding takes longer to process
- Doesnâ€™t offer banking services
Is Now a Good Time to Invest in Canadian Stocks?
Since Canada depends in large part on its extensive oil and gas industry, the slowdown in the global economy due to the COVID-19 pandemic has considerably impacted demand for such energy products. Although this was reflected in the Toronto stock market index and many individual stock prices in the Spring of 2020 when global stock markets tumbled, the TSX has since recovered all of its losses to post a new all-time high in January 2021.
Crude oil continues to be Canadaâ€™s most important resource and principal export, so oil prices can directly impact the Canadian economy and the value of the Canadian dollar. Another key economic factor is the price of minerals mined in Canada and widely exported, including gold, platinum, titanium, nickel, uranium, cadmium, potash, cobalt, diamonds and other gemstones, salt and graphite that can affect Canadian mining stock values.
The Canadian stock market also lists many cannabis stocks, which have made significant gains over the last few years. With the prospect of a major U.S. federal reform of marijuana laws on the horizon, the Canadian cannabis industry could be poised for a further significant upswing that will be reflected in cannabis stock prices.
If you expect the world economy to improve and demand for Canadian energy, mining or cannabis products to increase, then you may want to consider relevant Canadian stocks for long-term investments.
Continue reading: BEST TSX STOCKS TO BUY