If you’re in Canada, you might be wondering if you can trade the US stock markets. Trading in the U.S. is very similar to doing so in Canada, and many people around the world do trade in the U.S. stock market due to many more opportunities and fewer fees.
In this blog post, we’ll discuss why and how you should trade U.S. stocks and how to determine a broker that works best for you and your trading strategy.
Why Trade US Stocks
One of the most enticing reasons to trade U.S. stocks is diversifying your portfolio! Overall when the economy is slow in Canada, you can always use the U.S. economy as a buffer. Additionally, the U.S. market offers a ton more opportunities to invest in different sectors.
Canada is dominated by four main sectors:
In the U.S. you have the opportunity to trade within every sector. Some of the big ones that are more greatly exposed in the U.S. and not in Canada are healthcare, consumer staples, and technology.
The technology sector is a big one for those thinking about trading U.S. stocks from Canada. Some of the biggest tech companies in the world are traded on the U.S. markets. By trading U.S. stock you’ll be able to have access to companies like Facebook and Google.
Another reason why you may consider trading U.S. stocks is that two of the largest stock exchanges in the world are U.S. markets. The New York Stock Exchange and the NASDAQ are both traded in the U.S. markets.
The Exchange Rate
One of the biggest factors to keep in mind when trading U.S. stocks from Canada is the exchange rate. While the basic concept of trading U.S. stocks is very similar to that in Canada, the returns you see on your portfolio will differ due to the exchange rate. Currency movements are inevitable and happen quite frequently. When the Canadian dollar is strong you essentially can buy more in terms of U.S. dollars, and when the Canadian dollar is weak you won’t be able to buy as much in terms of U.S. dollars. This fluctuation impacts your portfolio in Canadian dollars. For example, when the Canadian dollar is strong, the returns you see from trading on the U.S. market is lower than expected, whereas if the Canadian dollar is weakening the returns reflected from the U.S. market will have a positive impact on your portfolio.
Another example, illustrated by Business Insider, in 2018 they reported that the “U.S. dollar invested in the S&P 500 had a 7.2% return, while Canadian dollars invested in the same stock had a 6.7% return after the adjusted exchange rates”.
How to Buy US Stocks from Canada
Buying U.S. stocks from Canada is simpler than most traders think. Here are the two most important things to keep in mind when starting your trading journey trading U.S. stocks.
- Brokerages: The first thing you should do is to do your research. Historically, trading on global markets used to be very costly, however, you can now find platforms that will allow you to do so for a very small fee, some less than $10 dollars. Make sure that when conducting your research you figure out the fees involved in using the platform and or broker. Some basic fees include items like: brokerage fees, exchange fees, and inactivity fees. One of the biggest concerns for many of those getting started on trading U.S. stocks are the exchange rate fees. Many brokerages will automatically convert currencies for you.
- Converting Canadian Dollars to US Dollars: As mentioned above, many online brokers will just automatically convert currency for you. However, this service comes with a fee. Sometimes those fees start to add up, and it’s up to you to determine when fees start to become unsustainable for you.
Fees may not be an issue if you’re trading with small amounts of money up to $1,000 dollars or so. However, for those of you trading with more than that using a method called Norbert’s Gambit may be beneficial for you. Trading with this strategy eliminates the fees that are associated with larger sums of money. However, the downsides to using Norbert’s Gambit are the commission fees and the fact it may take 3-4 days for your trades to execute.
Platforms That Allow Trading U.S. Stocks from Canada
Here is a list of a few popular platforms that allow you to trade both on the Canadian stock exchange and the U.S. stock exchange.
- Questrade – One of the most popular amongst traders. This platform is valued for its easy to navigate user interface and low fees across the board.
- Qtrade Investor – Another user-friendly option. This platform is praised for its high-quality stock research center and the portfolio analysis tools available.
- Interactive Brokers – This platform may be more geared towards more experienced traders versus casual or beginners. They also are praised for having low-cost commissions.
- TD Direct Investing – This platform is known for its research tools as well. They use WebBroker and Advanced Dashboard platforms. One thing that may be beneficial for using the platform is the mobile app they offer.
- CIBC Investor’s Edge – A platform more geared towards beginners and or casual traders. They communicate transparently their account fees and also offer low trading costs.
Trading with different currencies can be very beneficial for your portfolio and your overall earnings. Trading U.S. stocks is probably one of the easiest ways to get started in trading foreign currencies, due to its similarities to trading in Canada. The main takeaways here are to be wary of exchange rates and how often they fluctuate and to understand how they’ll affect your portfolio.
Secondly, do your due diligence and research brokerages and platforms. Make sure that you can even trade U.S. stocks and or that you can hold your money in U.S. currencies. Some platforms will convert your U.S. earnings back to Canadian dollars, so this is why doing your research is very important.
Overall, don’t let trading different currencies scare you, ensure that you’ve done your research and you have customer support on any platform that you use.