In case you haven’t noticed over the past few years, investors have had limited choices when it comes to stock markets that are stable, growing, and full of opportunity. The Canadian stock market has proven to be one of those choices, which is why more investors these days are interested in buying Canadian stocks than ever before. Of course, unless you live in Canada, gaining access to the Canadian stock market can involve a bit of legwork.
If you want to tap into the Canadian market, another great source of potential growth that many investors overlook, this information is for you. I’ll give you a few tips on how to find, buy, and trade Canadian stocks on their own market.
Where Are Canadian Stocks Traded?
Just like the United States, Canada has its own stock exchange – the Toronto Stock Exchange (TSX), located in Toronto, Ontario. The Toronto Stock Exchange is the largest exchange in Canada (there are others, such as ones in Montreal and Vancouver), the third largest exchange in North America, and the seventh largest exchange in the world. There are just under 1,500 companies listed on the exchange, with a total market capitalization of $10.92 trillion US.
The main index of TSX is the S&P/TSX Composite, which tracks companies that have roughly 70% of market capitalization on the exchange. All companies on this index are incorporated in Canada, by law.
While TSX is the main source for Canadian stocks, you can also find Canadian companies listed in American stock exchanges, such as NYSE (60-80 companies) and NASDAQ (140-160 companies). There are occasionally Canadian companies listed on other foreign exchanges, like the London Stock Exchange, but the vast majority are on either TSX or one of the American exchanges.
So, if you have access to American markets, you can buy and sell any Canadian stock that is listed on an American exchange. But since the vast majority of Canadian corporations are on TSX but not any other exchange, how do you trade them?
Buying Canadian Company Stock
The best way to go about purchasing Canadian stocks is to go through a broker that has access to the Canadian markets.
Many major Canadian corporations are listed on American exchanges, but since a lot of upside potential is found with smaller, emerging growth companies that aren’t listed over the border, it’s important to find a broker who can give you access to them. One option is to go to the OTC Bulletin Board (OTCBB), an off-exchange computer-based quotation system that pairs your order with someone else’s order via a computer network without going through an exchange. Just know that volume can be scarce and liquidity is often limited, meaning you could have difficulty finding someone to purchase your shares after you buy.
You can also go to online brokerages to trade Canadian stocks. Two that stand out at the moment are TD Waterhouse and PennTrade. TD Waterhouse allows access to the OTCBB and Canadian stocks in general and can place trades for you, although you will have to work with their foreign trading desk – which can place an order but at a higher cost than regular transactions. Other online brokerages tend to have foreign trading desks as well, but you may have to ask regarding which foreign stocks they can access.
TD Waterhouse is perhaps the most popular online brokerage for trading American and Canadian stocks. All trades there cost $7, and you gain access to all stocks on NYSE, NASDAQ, TSX, TSX Venture (Canadian venture capital companies), and others. Many traders who want to enter the Canadian market use TD.
One Tip for Trading Canadian Stocks
If you want to succeed in the Canadian market, you need to do the same due diligence as you would in any other market. This means finding financial filings, which in Canada means turning to the System for Electronic Document Analysis and Retrieval (SEDAR). SEDAR is the Canadian equivalent to the Electronic Data-Gathering, Analysis, and Retrieval (EDGAR) system that handles all electronic document filing for the Securities and Exchange Commission. You can use SEDAR to look up prospectuses, regulatory information, financial statements, and other key data.
American companies have to file a Form 10-K, an annual report of the company’s finances and performance, with the SEC. Canadian companies that are listed in the U.S. have to file a Form 20F, which gives you the equivalent information. You can’t access this information for free from EDGAR, though, so finding it usually involves a paid service.
Make use of SEDAR often when trading Canadian companies. You’ll want as much info as possible to make an informed decision, and that is a great resource for it.