Canada has 1 of the most heavily regulated forex markets in the world. This gives traders a secure trading environment, but it also limits your ability to trade forex using high leverage ratios.
You can still take advantage of currency market movements by trading forex in Canada. You need a viable strategy, a sound trading plan and a trusted online forex broker.
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Get Started with Forex in Canada
Getting started in the forex market is relatively easy despite the strict regulatory restrictions in Canada. Follow these 6 steps:
- Step 1: Obtain a relatively modern device connected to the internet.
- Step 2: Find an online forex broker that accepts clients from Canada.
- Step 3: Open a margin account with that broker.
- Step 4: Deposit funds using a payment method the broker accepts.
- Step 5: Download the broker’s trading platform or a platform you can use with that broker.
- Step 6: Make your 1st trade.
Canada Forex Trading Strategies
Next you need a funded account with an online broker that allows you to trade forex from Canada. You also need to develop a trading plan and strategy to increase your chances of success.
Several strategies could work for you, depending on your level of expertise in the market. The strategies listed below have shown positive results for retail forex traders whether they’re trading from Canada or anywhere else in the world.
- News trading. This strategy takes advantage of the extreme volatility exhibited by currency pairs after the release of important economic or geopolitical news.
- Scalping. This high-volume strategy involves profiting from very short-term market moves. Scalpers nimbly enter and exit the market to capture small profits a few pips at a time.
- Day trading. This strategy limits all transactions to a single trading session. Day traders will enter and exit positions intraday but close out all positions by the end of the trading session to avoid the extra risk involved in taking overnight positions.
- Swing trading. The classic “buy low, sell high” trading strategy, swing or momentum trading involves entering and exiting the market based on momentum technical indicators. Swing traders can, and often do, take overnight positions.
- Trend trading. This longer-term trading strategy involves looking for established directional movements called trends and then establishing positions along with the trend until its conclusion.
A downward trend in the USD/CAD currency pair from 1.41403 to 1.33144 that a trend trader could take advantage of. The daily candlestick chart also shows the 10-day moving average and 14-day ADX trend indicators that help traders identify trends. Source: MetaTrader.
Forex Trading Example in Canada
The national currency of Canada is the Canadian dollar (ISO: CAD). The Bank for International Settlements (BIS) ranks Canada 6th in turnover in the forex market with its 5% market share of average daily turnover.
The IMF also reports that the Canadian dollar ranked 7th among currencies held by central banks and made up 1.8% of global central bank reserves in Q4 2019.
The resource-based Canadian economy depends heavily on the oil, natural gas and mining industries. As a result, the price of crude oil exerts significant influence on both the Canadian economy and the Canadian dollar.
If you thought the USD/CAD rate was going to increase from that level, then you might buy $100,000 against the Canadian dollar today at that 1.3650 exchange rate. If the USD/CAD rate then subsequently rose to 1.3950, you would use the following calculation to determine your trading gains:
100,000 USD x (1.3950-1.3650 CAD/USD) = 3,000 CAD
To then convert that amount of Canadian dollar profit into U.S. dollars, you would need to perform the following calculation:
3,000 CAD ÷ 1.3950 CAD/USD = 2,150.54 USD
Alternatively, if the USD/CAD exchange rate had instead dropped to 1.3350, then your trading loss would be:
100,000 USD x (1.3650-1.3350 CAD/USD) = -3,000 CAD
Your loss converted into U.S. dollars at a USD/CAD exchange rate of 1.3350 would be:
-3,000 CAD ÷ 1.3350 CAD/USD = -2,247.19 USD
Making Money with Forex in Canada
Your success depends on the trading strategy or plan that you develop and implement. Successful trading plans can be applied to any trading strategy, from scalping to long-term trend trading. You can also use someone else’s trading plan or copy another trader through a social trading platform.
Copy trading is a popular form of investment education that helps you learn more about the process while following an expert. Remember, however, that copy trading does not guarantee success. You are simply learning what a successful trader would do. Just as a gambler will lose money at the card table from time to time, no trader has a perfect record.
Many successful trading plans include objective trading criteria, sound money management principles and a risk/reward analysis. Keep in mind that due to changing market conditions, many initially successful trading strategies may eventually fail to give the same good results.
Best Online Forex Brokers in Canada
A broker must comply with financial regulations enforced by the Investment Industry Regulatory Organization of Canada (IIROC) to accept forex clients in Canada. The IIROC is overseen by the Financial Institutions Supervisory Committee (FISC) that coordinates regulatory activity and sets regulatory policy for Canadian financial institutions.
Another 3 provincial agencies also regulate financial markets in Canada:
- Toronto: Ontario Securities Commission
- British Columbia: British Columbia Securities Commission
- Montreal and Quebec: Autorité des Marchés Financiers
When choosing your preferred forex broker, look at things like customer service, offerings, trading methods and spreads. At the top of our list is IFC Market because it offers both a proprietary trading style known as the GeWorko Portfolio Quoting Method and the option to create your own trading method. Each of these brokers has been reviewed by Benzinga for your convenience, but you must remember to only invest money you are prepared to lose. Forex, like any other investment, could turn sour at a moment’s notice.
Standard Accounts: $1,000
Founded in 2006, IFC Markets is a popular forex and contracts for difference (CFD) broker that provides high-quality trading services to over 185,000 clients from more than 80 countries. The broker has oversight from the British Virgin Islands Financial Services Commission (BVI FSC) as well as the Labuan Financial Services Authority (LFSA) in Malaysia.
IFC Markets offers trading in over 600 financial instruments including forex, stocks, indices, commodities, cryptocurrency futures and synthetic assets through excellent trading platforms: MetaTrader 4, MetaTrader 5 and its own developed NetTradeX advanced platform. IFC Markets also gives clients unlimited trading opportunities via its unique GeWorko Portfolio Quoting Method that lets traders create their own synthetic instruments or choose from PCI Library, synthetic instruments created by professionals.
- Traders who want to create their own trading instruments
- Intraday and mid-term traders
- Small volume traders
- Trading platforms variety
- The GeWorko Portfolio Quoting Method lets you create synthetic assets
- 15 years experience in the business
- Highly rated by clients with 8 recent international awards
- Insured by AIG Europe Ltd.
- Only regulated by 2 minor agencies
- Not available to traders in the U.S., Japan and Russia
FOREX.com is a one-stop shop for forex traders. With a massive range of tradable currencies, low account minimums and an impressive trading platform, FOREX.com is an excellent choice for brokers searching for a home base for their currency trading. New traders and seasoned veterans alike will love FOREX.com’s extensive education and research center that provides free, informative forex trading courses at multiple skill levels. While FOREX.com is impressive, remember that it isn’t a standard broker.
- MetaTrader 4 users
- Beginner forex traders
- Active forex traders
- Impressive, easy-to-navigate platform
- Wide range of education and research tools
- Access to over 80 currencies to buy and sell
- Leverage available up to 50:1
- Cannot buy and sell other securities (like stocks and bonds)
A fully regulated broker with a presence in Europe, South Africa, the Middle East, British Virgin Islands, Australia and Japan, Avatrade deals with mainly forex and CFDs on stocks, commodities, indexes, forex, cryptocurrencies, etc. This brokerage is headquartered in Dublin, Ireland and began offering its services in 2006. It offers multiple trading platforms and earns mainly through spreads.
- Advanced traders
- Traders looking for a well-diversified portfolio
- Controlled by regulatory agencies of multiple countries
- Choice offered in terms of trading platforms
- Support available in 14 languages and trading platforms in 20 languages
- Practice/demo account available for trying out
- Breadth of trading assets
- Does not accept customers from the U.S. as it isn’t regulated in the U.S.
- Transferring funds to the account may take up to five days; withdrawals could take up to 10 days
Eightcap forex is an Australia based forex and CFD broker with an offshore entity in Vanatau. The broker supports the MetaTrader 4 and 5 trading platforms and lets you trade over 200 financial instruments that include forex pairs and some CFDs on shares, indices and commodities. The broker offers customer support in several languages and caters to traders at all levels of expertise. You can trade through Eightcap in over 194 countries worldwide, but not if you are based in the US.
- MetaTrader 4 and 5 traders
- Active traders looking for low costs
- Traders looking to automate their strategies
- MetaTrader 4 and 5 trading platforms
- Low forex dealing spreads
- Free deposit and withdrawals
- Up to 500:1 leverage available to some traders
- No U.S. clients accepted
- No negative balance protection
Invest Where You Bank
Remember, you can also invest in guaranteed investment certificates, NBI funds, retirement plans and other wealth management solutions with the National Bank of Canada. When you look outside the traditional investment routes, you will find that diversifying in the Canadian market is easier when you can handle all your money in one place.
Forex traders have a unique terminology you need to learn before you begin trading. Here are the basic:
- Pip. The acronym stands for point in percentage and represents the smallest movement change in a currency pair’s exchange rate.
- Lot size. A standard lot size is 100,000 base currency units, while a mini lot represents 10,000 units and a micro lot represents 1,000 units.
- Orders. Instructions to execute transactions on your behalf given to your broker. Various order types exist, such as limit, stop-loss, take profit and market orders.
- Margin calls. When your trading positions require more funding for you to maintain, the broker will issue you a margin call to deposit additional funds.
- Spreads. The spread is the difference between the bid price and ask price. This difference is where the broker makes money. Of course, you are looking for brokers that offer the smallest spreads.
Is it Worth Trading Forex in Canada?
Trading forex requires considerable knowledge of the market, a viable trading plan and the discipline to stick to your plan. You also need funding for your strategy. If you meet those requirements, your location typically makes little difference.
Due to the IIROC’s stringent requirements for clients and brokers that accept Canadian clients, you’ll enjoy a high level of security for your funds. Take a look at our recommended brokers to trade forex in Canada now.
Frequently Asked Questions
What is the bid-ask spread?
The bid-ask spread is the commission brokers make as your intermediary on a forex platform. The bid price is the maximum price that a buyer is willing to pay for a currency, and the ask price is the minimum amount at which a broker is willing to sell a currency. This difference in between is called the spread.
The smaller the spread, the better for you as the trader. The size of the spread you are offered depends on many things, including the overall demand for the currency, its volatility and liquidity. The more liquid an asset is, the smaller the spread. This is why spreads are usually pretty tight in the forex market. It’s all liquid.
What are the most common forex charts?
Forex traders rely heavily on charts to make educated guesses about how a currency value will change. The charts help you observe historical fluctuation patterns.
The 3 most commonly used forex charts are bar charts, line charts and candlestick charts. Take a look at Benzinga’s Best Forex Charts to learn more. Most charts have personalized setting options so you can view a variety of technical indicators like price and volume to analyze price movements.
Can you legally trade forex in Canada?
Forex is legal in Canada. Each province has different regulations.
What are the Canadian tax rates for forex?
Canadian tax rates for 60% of the gains are at 15% and the remaining 40% are at a 35% rate.
Get a Forex Pro on Your Side
FOREX.com, registered with the Commodity Futures Trading Commission (CFTC), lets you trade a wide range of forex markets plus spot metals with low pricing and fast, quality execution on every trade.
You can also tap into:
- EUR/USD as low as 0.2 with fixed $5 commissions per 100,000
- Powerful, purpose-built currency trading platforms
- Monthly cash rebates of up to $9 per million dollars traded with FOREX.com’s Active Trader Program
Learn more about FOREX.com’s low pricing and how you can get started trading with FOREX.com.