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. 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 world’s 5th largest reserve currency and accounts for 2% of global Central Bank reserves as of December 2019. Nicknamed the “loonie,” 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 Montréal), 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 exchange’s low latency and high-performance trading system ranks orders by price, broker and time. 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.
Things to Consider When 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 year’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.
How to Buy Canadian Stocks
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.
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.
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.
Furthermore, many major U.S.-based stock brokerages let you trade TSX listed stocks and also let you trade ADRs on the largest Canadian corporations’ stocks.
Open a Brokerage Account
Once you’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 broker’s requirements.
Access Your Broker’s Trading Platform
You should now prepare to make transactions by accessing or downloading your broker’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 broker’s platform.
Plan Your Trade
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.
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 stock’s price chart and use technical indicators to help you better time your entry into a stock position.
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.
Best Online Brokers for Trading in Canada
The best brokerage account for Canadian stocks will depend in large part on whether you’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 brokers to open an investing account with for trading in Canada.
Diversify Your Investing Account with Canadian Stocks
Making the decision to invest in Canadian stocks requires careful consideration of various factors, including the country's economic and political climate, as well as the performance of individual companies.
One of the things that makes Canadian stocks attractive to investors is their diversity. The Toronto Stock Exchange (TSX) provides access to a broad range of industries and sectors, including energy, mining, technology, financial services, and healthcare. This diversification can help minimize risks for investors and provide stability to their portfolios. However, like all investments, Canadian stocks come with risks, and it is essential to have a well-researched investment strategy.
Frequently Asked Questions
Can I use Robinhood in Canada?
No, Robinhood is only offered to U.S. citizens.
Can a US citizen buy stocks in Canada?
Yes, U.S. citizens can buy stocks in Canada.
Do Americans pay tax on Canadian stocks?
U.S. residents who invest in Canadian stocks will be subject to both Canadian and American taxes. Canada’s tax rate on dividends for non-residents is currently 25%, which will be deducted by the Canadian company issuing the dividend before it reaches you.
Continue reading: BEST TSX STOCKS TO BUY