Canada is one of the wealthiest nations globally, with a nominal gross domestic product of $1.65 trillion. Even though the service industry leads its economy, the nation’s vast natural resources steer its exports. These factors play a significant role in making Canada one of the premier global investment destinations, especially for U.S. investors. Below we will go over how to buy Canadian stocks and what to look for.
The Canadian stock market also provides a level of diversity absent in U.S. markets, and its natural resources sector makes it prone to often-volatile movements in commodity prices. The following are the benefits of investing in Canada:
- Low Budget Deficit– in 2018, Canada posted a budget surplus of 0.8% in the first half of the year. For the same period, the U.S. deficit remained around 4% of the Gross Domestic Product (GDP). Besides, it compares favorably with many Asian and European countries. This means a more manageable fiscal stability and long term outlook.
- Stable Inflation Rates– As opposed to many emerging markets, Canada has a rather steady rate of inflation. This is due to more conservative bailout policies and partly tighter monetary policy with target interest rates of 2%.
- Strong Natural Resources– Canada has a vast natural resource base that ranges from crude oil to precious metals. This has helped it avoid problems faced by other developed nations that are net energy importers.
How to Buy Canadian Stocks
Search for an American listing
The easiest way for investors to buy Canadian stock is to purchase through a listing on the New York Stock Exchange (NYSE). Many Canadian enterprises, specifically those that have offices abroad or deal with forex, have an approval to trade on the NYSE, including the top five banks operating outside Canada.
The benefits of trading on the NYSE include:
- Traders don’t have to worry about converting their currency
- They can purchase stocks through any domestic brokerage
- Their ability to access SEC filings presents an opportunity to evaluate the health of the company
Persons interested in investing directly and in the Canadian market at large (rather than in a specific industry or company) can invest through the following channels:
- The Bank of Montreal (BMO)
- Royal Bank of Canada (RY)
- Canadian Imperial Bank of Commerce (CM)
Besides, one can check with their stockbroker of choice to clarify if the company of interest provides a listing on the NYSE.
By doing so, the guarantee to purchase these stocks the same way as one would an American company, as well as trade via the U.S dollar, is heightened.
Tip: This approach curbs any concerns about international fees, laws, and taxes that can increase the transaction cost.
Moreover, some U.S. brokerage firms provide a low-cost or free connection with subsidiary branches on global markets. However, this option is limited to the large brokers and is a simple way to trade directly on the Canadian market.
Comprehend Exchange Rates/ Tax Laws
If you are trading from your country, it is essential to consider the changeover of your nation’s currency to Canadian dollars (CAD). For instance, before trading, a trader in the United States, who is liaising with a Canadian broker, will most likely be required to convert USD to CAD.
Thought nugget: The exchange rate from USD to CAD varies every hour and each day. When investors decide to sell their stocks, they also have to reverse- their currency
Action point: It is crucial to track the value of your money through top conversion rate apps for live currency. Also, it is fundamental to bookmark a currency convertor such as XE.com on your PC for easy access.
Notably, capital gains tax in Canada is lower as compared to the tax on dividend income and interest. Therefore, capital gains can be considered quite a tax-advantaged channel of income.
Thought nugget: There are certain manual computations that will be required with reference to the payment of taxes related to capital gains.
Action point: Familiarize yourself with measuring the capital gains that call for tax. The calculation is similar to securities located in the U.S.
In the United States, the filing of tax returns is done through the Internal Revenue Service (IRS). It can also be carried out with the local or state collection agency.
Thought nugget: U.S. traders who possess Canadian investments should be aware of the requirements for annual filing.
Action point: Take note of regulations such as the Foreign Account Tax Compliance Act that expects you to reveal to the IRS foreign monetary accounts, for example, a brokerage account established in Canada.
Select an International Broker
After exchanging your currency to CAD, choosing a broker is the next step that you should take.
Helpful hint: Research is vital as it assists you in obtaining Canadian brokers’ information in a similar way as domestic stock agents.
There are a couple of brokerage platforms that are available online, and they can aid your transactions while you are still in the U.S. These include the following (which are some of the renowned choices):
The firm is popular among international investors owing to the fact that it provides citizens of the United States an all-inclusive opportunity to trade Canadian bonds, foreign currencies, and equities.
In terms of commissions, they are quite low as they are priced at CAD 0.01 for each share trades with at least a commission of CAD 1 as well as an upper limit commission of 0.5 percent of the value of the trade. In addition, a volume discount is available. Moreover, customer service is provided through regional centers situated throughout the U.S.
As a renowned trading platform, this company offers entire banking services and comprehensive market research, which are fundamental for skilled and apprentice traders.
It permits users to trade bonds and stocks on global markets.
Canada is viewed as one of the safest countries in the world, with a low budget deficit, robust polity, monetary policy, and a strong natural resource base.
If you are thinking about buying Canadian stocks, it is important to contemplate on:
- Finding an American listing
- Understanding exchange rates and tax laws
- Selecting an International Broker