Investors anticipate a boom in the economy as America’s neighbor to the north officially legalizes marijuana on October 17. In fact, the value of the Canadian dollar continues to rise ahead of legalization efforts and new trade agreements between the U.S. and Canada, so it’s probably smart to look into how to buy Canadian stocks.
Trading stocks on the Canadian market is legal for American citizens as long as you go through the proper channels to complete your purchases.
Step 1: Search for an American listing
By far the easiest way for investors to purchase Canadian stock is to buy via a listing on the New York Stock Exchange. Many Canadian companies, particularly those that deal with forex or have offices abroad, have been approved to trade on the NYSE, including all five of the top banks doing business out of Canada.
If you’re interested in investing simply and in the Canadian market as a whole (instead of in a particular company or industry), invest in the Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CM), or Royal Bank of Canada (RY).
You can check with your stock broker of choice to find out if the company you’re interested in offers a listing on the NYSE. If it does, you can purchase these stocks the same way as you would an American company, trade using the U.S. dollar, and you won’t have to worry about international taxes, laws, and fees.
Additionally, some U.S. brokerage firms offer free or low-cost connection with subsidiary branches trading on international markets. Though this option is usually limited to the largest brokers, it’s a simple way to directly trade on the Canadian market.
Step 2: Understand exchange rates and tax laws
If you’re trading from the United States, chances are that you’re holding USD as your base currency.
When working with a Canadian broker, you’ll likely be asked to convert your currency into Canadian dollars (CAD) before trading. The USD to CAD exchange rate changes on both a daily and an hourly basis — you’ll want to monitor how much your money is worth using a service like XE.com (which provides real-time updates to almost all currency values on the market).
Quick tip: Keep in mind that you’ll also have to reverse your currency when you sell your stocks, so it’s worth it to keep a currency converter bookmarked on your computer for quick access.
Thanks to the Canadian-U.S. Income Tax Convention, your international broker will automatically remove Canadian income tax contributions from your stock sales and dividends.
However, you can reclaim this money by filling for the Foreign Tax Credit on your taxes when April rolls around; be sure to keep records of every fee or percentage you pay.
Step 3: Choose an international trading platform
Once you’ve gotten your CAD in-hand, it’s time to choose a broker! You can research and contact Canadian stock brokers in the same way you would choose a domestic broker and there are a number of online brokerage platforms you can use to facilitate your trades from the U.S. Some of the most common choices for trading on the Canadian market include:
1. Interactive Brokers
International traders love Interactive Brokers because it offers U.S. citizens a one-stop-shop for trading Canadian equities, bonds, and foreign currencies. Commissions are incredibly low, coming in at $0.01 CAD per share traded with a minimum commission of $1 CAD and a maximum commission of 0.5% of the trade value.
E-Trade is a popular online trading platform that allows users to trade stocks, bonds, and ETFs on international markets. E-Trade’s full banking services, intuitive desktop, and mobile interfaces and extensive market research are all popular with novice and experienced traders. To trade on the Canadian stock exchange, you must convert your currency to CAD and then purchase stocks on the Toronto or Vancouver exchange through E-Trade’s platform.
PennTrade charges a whopping $29.95 in trade commission on each purchase, so it’s only a cost-effective platform for major traders looking to avoid a percentage commission. PennTrade charges no extra fees for market orders, limit orders, or small stocks trading at under $1 in value, which are hidden fees that many other competitors tack on. They even offer every 10th trade for free!
Step 4: Make your first purchase
Once you’ve chosen your platform and opened an account, it’s time to put in your first order.
While the specifics of how to place an order will depend on which brokerage firm you’re using, you can read our review on how to get started trading.
Take time to learn how to invest in Canada’s booming market. It can result in massive long-term gains, though you’ll need to do your research for the best chance of success.