Forex trading in Canada has become popular since currency trading became available to retail traders via online forex brokers.
Canada’s forex market is among the most heavily regulated in the world, which gives traders a secure trading environment. That same security comes at a cost with respect to your freedom to operate using high-leverage ratios.
Quick Look: The Best Forex Brokers to Use in Canada
- Best Overall: FOREX.com – Open an account
- CMC Markets – Open an account
- Interactive Brokers – Open an account
What You Need to Know Before You Start
Trading in the forex market differs from trading stocks and other exchange-traded assets, in part due to the forex market’s unregulated nature and the fact that you can trade 24 hours a day during the forex trading week.
Other significant differences involve the geopolitical news, economic releases and Central Bank interest rate decisions have on the forex market.
A familiarity with currencies and knowledge of how to trade forex and a plan of action or set of rules to follow when trading are must-haves. Once you do that, open a demo or virtual account with your choice of one or more forex brokers to practice and test your trading strategies in a real-time market environment.
Demo accounts are offered by most online brokers and they also give you a chance to check out the broker’s trading platform and execution services with no financial risk.
Never traded or have limited trading experience? The good news is that many online forex brokers offer educational resources such as videos, articles and ebooks that can help familiarize you with the forex market. Even so, you’ll find no substitute for actual trading experience.
Once you’ve spent enough time trading in a demo account and have developed enough confidence in your trading strategy, choose a forex broker and fund a live trading account.
All About CAD
The Canadian dollar (CAD) is the world’s 5th largest reserve currency. It accounts for 2% of global Central Bank reserves and it is also the 6th most actively traded currency worldwide. Known fondly among forex traders by its nickname “the loonie,” the Canadian dollar has traditionally benefited from Canada’s generally sound economy and political stability.
The Canadian economy, which exerts the most influence on the value of the Canadian dollar, depends in large part on the oil and gas industry and mining operations within the country that exports those products to other nations. Crude oil remains Canada’s most important resource and number 1 export, so the price of oil, and to a lesser extent, gold, can directly affect the value of the loonie.
Recent international tension over trade and tariffs imposed by the United States has been an issue for Canadian markets and has adversely impacted the valuation of the CAD against the U.S. dollar and other currencies given the importance of trade with the United States to the Canadian economy.
Also, the renegotiation of NAFTA to form the United States-Mexico-Canada Agreement (USMCA) will most likely impact Canadian markets and the loonie’s valuation, too.
Among the various popular forex trading strategies, one strategy you might want to research is news trading, although you might need a strong stomach to take the risks involved. News trading aims to profit from the market impact of economic news releases, geopolitical events and Central Bank decisions have on a currency’s valuation. In the case of the Canadian currency, the OPEC Meetings and the price of crude oil also can affect most currency pairs that include CAD.
Furthermore, the Governing Council is the body within the Bank of Canada (BoC) that sets monetary policy for the country. It is made up of the Governor and the Senior Deputy Governor and also includes four Deputy Governors. The Bank of Canada’s Governing Council meets every month and then announces its interest rate decision, which tends to make pairs that include the CAD temporarily more volatile during the announcement.
More recently, news of tariffs imposed by the United States and the details of the USMCA have affected the value of CAD. Other important numbers that influence the value of CAD against other currencies include the Canadian Gross Domestic Product (GDP), employment numbers (such as the Canadian Unemployment Rate and Employment Change) the Consumer Price Index (CPI), Core Retail Sales and the Canadian Trade Balance.
Laws and Regulations
Forex brokers in Canada must comply with financial regulations enforced by the Investment Industry Regulatory Organization of Canada (IIROC) to accept Canadian customers.
Oversight for the IIROC is provided by the Financial Institutions Supervisory Committee (FISC), which coordinates regulatory activity and sets regulatory policy for Canadian financial institutions.
To verify whether a Canadian forex broker is overseen by the IIROC, the broker will typically include some risk disclosure text at the bottom of their homepage. You can also check the IIROC’s Dealers We Regulate page and search for the broker.
Canadian regulation doesn’t all take place at the federal level since 3 provincial agencies also regulate financial markets. In Toronto, the local regulator is the Ontario Securities Commission. In British Columbia, it is the British Columbia Securities Commission. In Montreal and Quebec, the local regulator is the Autorité des Marchés Financiers.
Another key IIROC regulation known as Rule 100.2(d) specifies maximum leverage and margin rates for forex trades. The agency lays out several margin rates, with the applicable rate depending on which of 4 currency groups the currency pair falls under, which in part depends on the currency’s volatility. Currency futures can, however, be margined according to the rules of the exchange they are traded on.
Keep in mind that the lower the margin rate, the higher the leverage ratio. For example, a 1% margin rate corresponds to a leverage ratio of 100:1, which means that you can control a $100 position with just $1 placed on deposit as margin, while a 3% margin rate corresponds to a 33.3:1 leverage ratio.
The IIROC’s margin rates on unhedged spot trade positions are 1.0%, 3.0%, 10.0% and 25.0% for currency groups 1 through 4, respectively. If the trade was for settlement beyond the customary 1 or 2 days for spot trades, then the trade is deemed a “term trade” and can be margined at rates of 1.0%, 3.0%, 5.0% and 12.5% for groups 1 through 4.
The IIROC also has strict requirements for members of the Canadian financial services sector involved in providing retail forex brokerage services. Its requirements for Canadians who wish to trade currencies are almost as strict.
In addition to verifying your address, identity and Social Insurance Number, the IIROC’s “Know your Client Rule” obligates forex brokerages to obtain and investigate personal information about potential customers, including their age, marital status, occupation, income, net worth, number of dependents, risk tolerance, investment objectives, investment knowledge and experience.
Your broker will need to know if you or a family member has held a position with a foreign government that qualifies you and other members of your family as “politically exposed persons.”
All third parties who have an interest in your finances must also be disclosed for money laundering avoidance purposes. In addition, the source of funds you use to open your account, as well as what your intentions with the account are, must be disclosed in order for your investment dealer to comply with all IIROC regulations.
Pick a Canadian Forex Broker
In addition to submitting to oversight from the IIROC, the best forex brokers in Canada automatically become members of the Canadian Investor Protection Fund (CIPF) with IIROC compliance.
This fund protects Canadian traders’ cash and securities up to $1 million CAD in the event of an IIROC regulated brokers’ insolvency, which is considerably more than the U.K.’s Financial Conduct Authority, which only insures traders’ assets up to ￡50,000. You can check out 4 of the best forex brokers in Canada below and pick the one that suits you best:
FOREX.com Canada Ltd.
FOREX.com offers clients multiple trading platforms, such as MetaTrader 4, NinjaTrader, its proprietary ForexTrader Pro platform and a web-based trading platform you can access through any Internet-connected computer.
FOREX.com has a minimum deposit of $250, which lets you trade over 80 currency pairs and provides extensive educational and research material.
The broker offers several account types and
Oanda Canada Corp. ULC
In addition to the MetaTrader 4 platform, Oanda offers mobile, desktop and web-based trading platforms that include most of the classic technical indicators and charting capabilities.
Oanda also offers extensive educational resources that include webinars, live market analysis sessions and risk management tutorials.
Oanda has competitive dealer spreads and does not require a minimum deposit to open an account, although you will need to deposit the initial margin required to hold a position before trading.
CMC Markets Canada
CMC Markets offers 180 currency pairs to trade on its Next Generation trading platform. The platform software is written in HTML5, which makes it faster than many comparable trading platforms.
The Next Generation platform does not yet support automated trading, but it does have social trading and pattern recognition tools.
Also, you can use the MetaTrader 4 platform with CMC if you need a platform for automated trading. CMC does not require a minimum deposit to open an account, and the broker offers competitive dealer spreads.
Interactive Brokers Canada
Interactive Brokers offers trading in more than 120 world markets and its trading platform is one of the highest rated in the business.
Its commissions schedule may be somewhat complicated but its trading fees are some of the lowest in the industry.
Interactive Brokers also offers extensive research and educational material for less experienced traders.
This broker caters to more experienced traders and charges an inactivity fee for idle accounts along with a $10,000 minimum initial deposit.
Execute Your First Trade
Have you taken advantage of the free demo trading account offered by many forex brokers and have used your experience to select the best broker for your needs? Now that you’ve funded an account with your broker of choice, you can make your first trade.
Have a trading system or plan that lays out objective rules for you to follow when entering and exiting the market. Remember to make sure that you include money management elements in your trading plan since this can save you a lot of money because your trades won’t always be winners. Place stop-loss orders in the market when you are unable to watch it to avoid putting any more money at risk than necessary.
The Canadian retail forex market is one of the most regulated in the world, which can make trading currencies relatively challenging if you prefer to use high leverage ratios in your trading strategy. Canada still has regional regulators in addition to the IIROC, which can complicate matters further for traders living in those affected provinces.
The high level of required personal information disclosure and the leverage ratio limitations imposed on Canadian traders are somewhat balanced with the high level of security for funds held at a Canada-based forex brokerage due to its membership in the CIPF.