The best forex brokers in Canada measure up to forex brokers elsewhere. Each country’s currency is managed by its central bank and/or government, and each often uses different processes, that’s why it gets tricky navigating the brokerage world.
Consequently, the relative value of a currency changes over time when compared to another currency. Most currencies around the world are tied in some way to the U.S. dollar.
The U.S. dollar is the baseline currency in everything from commodities to stocks. Since each individual currency fluctuates due to changes in supply and demand, currencies change over time.
Quick look: the best forex brokers in Canada
- FOREX.com – Open an account
- CMC Markets – Open an account
- TD Ameritrade – Open an account
- City Index – Open an account
- What is forex trading?
- What are lot sizes?
- Determine the lot of one pip
- Commonly traded forex pairs
- Types of forex orders
- Risk and forex trading
- How we made our selection
- Best overall: CMC Markets
- Best platform and tools: Forex.com
- Most pairs offered: CMC Markets
- Best customer service: TD Ameritrade
- Lowest spreads and fees: City Index and CMC Markets
- Best product offerings: TD Ameritrade
- Final thoughts
What is forex trading?
Foreign exchange trading, often referred to as forex, is the exchange from one currency to another. If you’ve ever been at an international airport, you’ll see kiosks where you can exchange one currency for another.
Those kiosks perform the same function as the currency exchanges, just on a much smaller scale. The large-scale version occurs between banks and traders, which passes trillions of dollars. Forex trading occurs between two currencies.
These can be any two currencies so long as the countries do business with one another. The names are often shortened from Australian dollar to AUD or U.S. dollar to USD.
Pairs are listed like this: AUD/USD of 0.72, which is the equivalent of one unit of the first currency in the second currency. This means that it takes 0.72 US dollars to equal one Australian dollar. Fluctuations in the forex market are extremely small.
During the last year, the Australian dollar has gone from 0.80 to 0.72 versus the U.S. dollar. It took one year to move $0.08. Accordingly, forex traders use leverage to take advantage of small fluctuations in price movements.
Leverage allows someone with $10,000 to trade as if he has $50,000 up to $2,000,000. The forex markets have a few unique characteristics.
- They essentially operate 24/7: they’re closed from 5 p.m. EST Friday night until 6 p.m. EST on Sunday.
- They don’t report volumes of transactions, unlike stocks. If you tried to chart price movement from your broker of a forex pair it wouldn’t show any volumes.
- It’s also worth noting that some major pairs also have futures contracts associated with them.
What are lot sizes?
When people trade forex, they purchase in lots, or standard contract amounts that are directly tied to leverage. Lot sizes come in the following categories:
- Standard: 100,000 units
- Mini: 10,000 units
- Micro: 1,000 units
If you have leverage of 1:100 you will need $1,000 to be able to control one standard lot. If you have 1:500 leverage you would only need $250 to control one standard lot.
Determine the lot of one pip
Similar to a tick in stocks and futures, a pip is the smallest denomination of movement in a forex pair. The calculation for a forex pairs pip is fairly straightforward: 1/10,000 (a pip) ÷ exchange rate x number of units = pip value
|Min movement||Exchange rate||Lot size||Value per movement|
Commonly traded forex pairs
As you might expect, the major countries of the world are the major currencies traded including:
- U.S. dollar: USD
- Australian dollar: AUD
- Great Britain pound sterling: GBP
- Euro: EUR
- Swiss franc: CHF
- Canadian dollar: CAD
- Mexican peso: MXN
- Japanese yen: JPY
- Chinese yuan/renminbi: CNY
- Swedish krona: SEK
Types of forex orders
Like stock trading, the forex market uses some basic orders for buying and selling:
Market order: Fills the order at the best available price, usually at the bid when buying or ask when selling
Limit order: Fills the order at a specific price, and not before it’s reached.
Stop order: Once that specific price is hit your position is exited using a market order.
Stop limit order: Once a specific price is hit your position is exited using a limit order.
Risk and forex trading
While investing and trading in stocks involves risk of loss as well as risks associated with ownership of a company, forex trading involves some different risks.
Leverage risk: There very instrument traders and investors use to capture more from small movements in currency price can also magnify substantial price swings. Because trading is done on margin, unexpected price movements can result in margin calls, which require investors to add additional margin costs or add additional funds.
Volatility risk: Volatility or variability are the changes in price quotes over a period of time. Opening or closing a position as prices move up or down can be more challenging when volatility is high and price swings are wider.
Interest rates: Central banks and governments use interest rates as a way to increase and decrease money supply within the economy. Since the exchange rate between two currencies is derived from the supply and demand of each currency, changes in the interest rate can result in movements higher or lower in the currency pair pricing.
Sovereign risk: Governments back their home currency. When geopolitical events arise, such as we’ve seen with the crisis in Argentina, they manifest within the currency prices. Governments that are more reliable garner premiums, where riskier government currencies will trade at discounts.
Counterparty risk: Counterparties are the entities which provide the assets to investors when they trade. The risks associated with these companies come about when they cannot cover all their transactions or are at risk of default.
While regulators such IIROC in Canada regulate these companies to ensure they maintain appropriate safety nets, extraordinary events such as the financial crisis in 2008 can lead to additional risk.
Liquidity risk: As with any traded asset, the ability to sell relies on someone willing to buy. If any geopolitical event reduces the participants in the market, liquidity risk, or the risk associated with the ability to buy or sell, becomes a significant factor.
How we made our selection
Canada is somewhat limited in the number of forex brokers that can be used relative to other areas of the globe like the U.K. or Australia.
Part of this is due to what many see as excessively complicated guidelines and fragmented authorities between provinces. However, the brokers that are available happen to be top notch.
We evaluated them based on the following criteria:
- Transaction costs: Brokers make money often in the spread between the bid and the ask prices for currencies. The smaller the difference between the two, the cheaper it is for investors to trade.
- IIROC regulation: Investment Industry Regulatory Organization of Canada, IIROC, regulates the amount of leverage as well as stipulates compensation for brokers’ insolvency. The Canadian Investor Protection Fund compensates traders for up to $1 million if the broker goes belly up. It’s worth noting that Canada has strict limits on the margin and leverage it allows, with the max currently being 2.2% or 1:45.
Best overall: CMC Markets
You’ll see CMC Markets several times in our reviews, and for good reason. The company started in 1989 and has a long history as a superior broker across the industry.
If you look on YouTube you can find its free market analysis videos. The company says it has one of the widest arrays of currency pairs available, along with a proprietary platform and global presence.
What makes CMC stand out is its excellent education. The company provides investors with webinars, commentary, educational videos, as well as short courses to cover the basics of trading for new investors.
Where CMC Markets lacks is in more of the customization and analytics that more advanced traders might enjoy.
Best platform and tools: Forex.com
FOREX.com is owned by Gain Capital (GCAP), which trades on the NYSE. What sets this company apart are their multiple trading platforms from the popular Metatrader 4 to Forextrader Pro and Web Trading.
Users can take advantage of the platform that best suits their needs, as well as incorporates automated trading for the more advanced programmers.
Couple that with their solid mobile applications, and Forex.com comes out with some of the best platform experiences across brokers. The company takes it a step further with their plethora of research and insights.
While the research and tools may be different from platform to platform, most offer economic analysis, real-time news, and advanced data analysis.
Most pairs offered: CMC Markets
We find CMC Markets again on our list for the most currency pairs offered.
CMC markets offers over 180 forex pairs.
Compare that to our next highest at Forex.com with just over 80 pairs, and you can see why CMC Markets comes out on top.
It is worth noting that not all currency pairs may be available for trade in Canada depending on the IIROC regulations at the time.
Best customer service: TD Ameritrade
Most people are familiar with TD Ameritrade as a larger player in the banking industry.
The company topped our list for service because of the variety of options they have to contact them.
Beyond basic forex questions, customers can reach TD Ameritrade through one of their over 100+ branch locations, phone, email, messaging, fax, text, or even Facebook messenger.
Lowest spreads and fees: City Index and CMC Markets
While most of the brokers on our list have similar spreads, City Index just nudged out the competition in one category, but overall we’d put at a tie with CMC Markets.
City Index, established in 1983, is a global player in the financial investment world, trading in over 12,000 markets.
For as little as it may seem, City Index beats out the others by a mere pip EUR/USD at 0.69 vs CMC Markets at 0.7.
When you look at the GBP/USD, City Index’s 1.22 spread vs CMC Markets of 0.9 gives the edge back to CMC Markets.
Much of the costs come down to which markets and products you end up trading, along with the platform chosen.
Oftentimes brokers will charge different rates based on the platform you use.
Best product offerings: TD Ameritrade
TD Ameritrade is a behemoth in the finance industry, so it shouldn’t be a surprise that it has the best suite of total product offerings.
As an all-around institution, TD Ameritrade offers a one-stop shop for forex, stock, banking, and literally any other financial product you could think of.
The integration allows TD Ameritrade to move money between your accounts seamlessly, as well as offers suites of products tailored to your individual needs.
With a firmer control from IIROC, Canadian brokers haven’t been able to offer the leverage and extensive products that other customers around the globe receive.
However, what they give up they get back in the substantial protection offered by the Canadian Investor Protection Fund. As such, there are a limited number of brokers who operate within Canada. It’s worth noting that the regulations may be different from province to province within Canada itself.
Nonetheless, there are some really solid companies to choose from who have garnered multiple awards and accolades over the years. Investors shouldn’t have a problem finding a broker to meet their individual needs for trading in the forex market among those available.