If youve ever invested in a multinational company, youve been exposed to currency risk, which occurs because of the differences between the currency of two countries.
The best forex brokers in Canada measure up to forex brokers elsewhere. Each countrys currency is managed by its central bank and/or government, and each often uses different processes, thats 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.
Foreign exchange trading, often referred to as forex, isthe exchange from one currency to another. If youve ever been at an international airport, youll 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 essentiallyoperate 24/7: theyre closed from 5 p.m. EST Friday night until 6 p.m. EST on Sunday.
They dont report volumes of transactions, unlike stocks. If you tried to chart price movement from your broker of a forex pair it wouldnt show any volumes.
Its also worth noting that some major pairs also have futures contracts associated with them.
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:
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.
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
As you might expect, the major countries of the world are the major currencies traded including:
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 its 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.
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 weve 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 IIROCin Canadaregulate 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.
Canada is somewhat limited in the number of forex brokersthat 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:
: 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.
: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. Its worth noting that Canada has strict limits on the margin and leverage it allows, with the max currently being 2.2% or 1:45.
Those looking for a wide range of currency pairs
Education: has YouTube videos, webinars, and other education tools
Youll 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 thewidest arrays of currency pairs available, along with aproprietary platform and global presence.
What makes CMC stand out is itsexcellent 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.
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 theirsolid mobile applications, and Forex.com comes out with some of the best platform experiences across brokers.The company takes it a step further with theirplethora 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.
We find CMC Markets again on our list for the most currency pairs offered.
Compare that to our next highest at with just over 80 pairs, and you can see why CMC Markets comes out on top.
It is worth noting thatnot all currency pairs may be available for trade in Canada depending on the IIROC regulationsat the time.
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 theirover 100+ branch locations, phone, email, messaging, fax, text, or even Facebook messenger.
Read Benzingas full TD Ameritrade Review
While most of the brokers on our list have similar spreads, City Index just nudged out the competition in one category, but overall wed 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.
City Index also appears on our list for the best forex brokerages inSingaporeandAustralia.
When you look at the GBP/USD,City Indexs 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.
TD Ameritradeis a behemoth in the finance industry, so it shouldnt be a surprise that it has the best suite of total product offerings.
As an all-around institution, TD Ameritradeoffers 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.
Read Benzingas full TD Ameritrade Review
With a firmer control from IIROC, Canadian brokers havent 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. Its 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 shouldnt have a problem finding a broker to meet their individual needs for trading in the forex market among those available.
$5 per trade, Per-share pricing: $0.006-$0.01 per share ($1 minimum per trade) based on trading volume, Unbundled pricing: $0.002-$0.01 per share ($0.50-$1 minimum) based on trading volume
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Advertiser Disclosure:TD Ameritrade, Inc. and Accretive Capital LLC are separate, unaffiliated companies and are not responsible for each others services and products.