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A contract for difference (CFD) is an agreement to exchange the cash difference between the initial and closing price of a position. Although a CFDs value depends on the price of a specific underlying asset, it remains a derivative financial instrument that does not involve actually buying or selling the asset.
Are you looking for a way totrade CFDsin Canada? How you trade CFDs is just as important as the broker you use to trade, so make sure you carefully select a Canadian CFD broker.
Trading CFDs has become notably popular among retail traders in Canada as a result of the rise of online brokers over the past few decades. Online brokers who operate in Canada do so under some of the strictest local regulations. This gives Canadian CFD traders an especially safe operating environment, although they may not be able to take advantage of the high leverage ratios available to traders from other countries.
Any CFD broker that operates in Canada and solicits accounts from Canadian clients needs to do so under the financial regulations laid out by the Investment Industry Regulatory Organization of Canada (IIROC). The Financial Institutions Supervisory Committee (FISC) oversees the IIROC. It also coordinates financial regulatory activities and sets regulatory policy for financial institutions in Canada.
You can visit the IIROCs web page entitled Dealers We Regulate if you would like to check whether a CFD broker properly submits to regulatory oversight by the IIROC. You can also look for the IIROCs required risk disclosure text that should appear on the brokers official homepage, usually near the bottom.
In addition to IIROC financial regulation, Canada also has 3 provincial agencies that regulate local financial market participants like CFD brokers: the Ontario Securities Commission, the British Columbia Securities Commission and the Autorit des Marchs Financiers.
The IIROC has established margin rates for various financial products in its Rule 100 document that remain subject to change. Margin requirements can also differ based on the currency of your account. For a sample list of current IIROC margin rates that includes CFDs, visit OANDA Canadas website.
When you open an account with a CFD broker in Canada, you will need to provide information that complies with the Know Your Client rule that the IIROC requires. This will involve verifying your identity, address and Social Insurance Number (SIN), as well as other personal information including your age, occupation, marital status, number of dependents, income and net worth. You will also need to answer questions about your investment objectives, investment knowledge, risk tolerance and trading experience.
Canadian CFD brokers will also ask if you or a member of your family have held a foreign government position that qualifies them as politically exposed persons. You will also need to disclose the source of funds you open your account with, your intentions in doing so and the name of any third party that has a financial interest in your account to prevent money laundering.
Canadian CFD brokers regulated by the IIROC are also Canadian Investor Protection Fund (CIPF) members. This fund provides impressive protection of up to C$1 million for traders cash and securities in case their broker becomes insolvent.
Any acceptable CFD broker operating in Canada will be regulated by the IIROC, as well as potentially by a local regulator in the province they are based in. The broker may also submit to regulatory oversight in other well-regulated countries or regions such as the U.S., Great Britain and the European Union.
Each online CFD broker also provides a different set of services and assets you can trade, so choose one that has the best features and supports the CFD markets you want to operate in. The following list covers additional things that thebest CFD brokerstypically offer.
All decent online CFD brokers should offer easy-to-use trading software free of charge. Many online brokers like FOREX.com have a proprietary platform, although you can trade CFDs through the popular MetaTrader 4 or 5 platforms you can download for free from MetaQuotes website. You can enter orders, draw charts, perform fundamental and technical analysis, test strategies over historical data, create your own indicators and automate your trading plans on these similar platforms.
Youll want your CFD broker to have a responsive customer service department if you encounter a trading error or have an important question to ask. You should be able to contact your broker via phone, live chat, email and fax. Your broker should also provide a FAQ with detailed answers to questions clients often ask.
Most CFD brokers make their money from the dealing spread, but some may also charge trading fees or commissions. These transaction costs should be as low as possible, although longer-term CFD traders may not be as sensitive to this.
Most top CFD brokers have a research department that provides fundamental and/or technical analysis for their clients. They may also offer trade ideas and educational materials that those newer to CFD trading may appreciate.
When looking for thebest online brokerto trade CFDs through from Canada, you can review the list of our top picks below to choose one that optimally fits your overall requirements.
Spreads start as low as $1But vary based on trading volume
FOREX.com requires just a $250 minimum deposit to get started trading CFDs, although a direct market access (DMA) account requires a $25,000 initial deposit.
The broker also offers an extensive array of useful research and educational material for traders.
This brokers supported trading platforms include MetaTrader 4 and 5 and NinjaTrader, in addition to its own proprietary ForexTrader Pro platform for desktops. Platforms are also available for web browsers and mobile devices.
You can operate in an unusually large number of global financial markets under the Canadian branch of Interactive Brokers. Interactive Brokers Trader WorkStation (TWS) platform is also one of the best rated platforms for CFD trading.
Interactive Brokers makes CFDs on forex, indices, cryptocurrencies, commodities and treasuries available to its trading clients. Review Interactive Brokers CFD Product Listingsfor a full listing of the stocks you can trade, which include large- and medium-cap stocks from the U.S., Japan, Western Europe and Nordic countries. Some of the more liquid small-cap stocks are also available in many markets.
Interactive Brokers commission schedule is a bit complicated, although its fees remain among the industrys most competitive. The broker also makes its extensive educational material and research available to clients. Interactive Brokers charges an inactivity fee if you leave your account idle and also requires you to make a $10,000 initial deposit to open an account.
OANDA Canadas trading clients are automatically enabled to execute CFD transactions in their accounts. In addition to trading in a wide variety of currency pairs, OANDA allows CFD trading in commodities like precious metals, crude oil, natural gas, soybeans, wheat, corn and sugar.
OANDA features competitive dealing spreads with no minimum deposit, although you have to first deposit whatever initial margin is required to hold a position before you can open it. The broker also has an extensive set of educational and analysis resources that include live market analysis, webinars and risk management lessons.
OANDA supports MetaTrader 4 (MT4) and also offers its own desktop, mobile and web-based platforms. These options all allow you to draw charts and include a standard set of technical indicators for analysis purposes. CFD trades can be executed on all OANDA platforms, including OANDAs branded version of MT4.
Canadian residents can trade CFDs on thousands of financial and commodity products through CMC Markets Canada. These include forex currency pairs, cryptocurrencies, stock indices, commodities, individual shares and treasury bonds.
CMCs proprietary Next Generation trading platform written in HTML5 is fast and supports social trading. It also has chart pattern recognition tools, although you will need to use MetaTrader 4 if you want to automate your CFD trading.
You do not need to make a specific minimum deposit to open a trading account with CMC, but you must deposit enough to cover your first trade before you can execute it. The broker has generally competitive dealer spreads, although it charges an entry and exit commission for trading CFDs on shares.
CFD trading on a variety of underlying assets and asset types is available in Canada through a wide range of online brokers, including the especially reputable brokers listed above.
Canadian CFD traders benefit from the relatively high security of their local regulatory environment and an impressive protected deposit amount of CAD $1 million, in addition to wide options when CFD trading.
While safer, this strict regulation can make CFD trading more challenging if you use high leverage ratios as part of your trading strategy. Several provincial financial regulators in Canada can also complicate regulatory matters for traders who live in the affected provinces of Ontario, Qubec and British Columbia.
$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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