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How to Buy US Stocks in Canada?

Views 477Jul 3, 2024
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Almost USD14 trillion of US equities are held by foreign investors, of which Canada owns about 10%. That’s because investing in the US stock market, directly or through funds, is a fantastic way to grow your money by diversifying your investments while seizing opportunities  to own global leaders like Apple and Amazon.

However, buying US stocks from Canada involves, among others, understanding taxes, choosing the right brokerage, and handling currency exchange rates. It can seem complicated, but with the right guidance, it becomes much easier.

This guide will walk you through everything you need to know. Whether you’re new to investing or looking to expand your portfolio, we’ll cover the basics to simplify your journey in US stocks investing.

Can you buy US Stocks in Canada?

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Absolutely! Canadians can buy US stocks just like they buy Canadian stocks, thanks to a variety of online brokerages. These platforms make it super easy to access the US market.

Most major US stocks, especially those listed on well-known exchanges like the New York Stock Exchange (NYSE) or NASDAQ, are available through Canadian brokerages. So, if you're eyeing big names like Apple or Amazon, you’re in luck.

For instance, when the S&P 500 reached a new high in March 2024, Canadian investors  acquired over $23 billion of foreign stocks, 81% of which were US companies, led by large technology names.

However, not all US stocks are available. For example, penny stocks that trade over the counter (OTC) might not be listed on some Canadian platforms. Some brokerages have rules about liquidity and trading volume, so stocks that aren’t traded much might be off-limits.

Don’t worry! If you’re looking to buy mid-to-large US capitalizations , you should find them on Canadian brokerages. Just pick one that suits your needs, set up your account, and you’re ready to start trading in the US market!

How to buy US Stocks in Canada?

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Here’s a step-by-step guide to get you started:

Step 1: Choose a brokerage

First, select an online brokerage that offers access to US markets. Popular options in Canada include moomoo, Questrade, TD Direct Investing, and RBC Direct Investing. These platforms are user-friendly and offer a variety of tools to help you make informed decisions. If you’re looking for more advanced features and potentially lower fees, you might also consider US-based brokerages which accept Canadian clients. Compare the features, fees, and user reviews to find the best fit for your investment needs.

moomoo is the best US stock trading platform in Canada since we provide a series of advanced technology analysis tools, real time level 2 live order quotes, and save your costs with low exchange and commission fee. Open an account on moomoo without risk a dime!

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Step 2: Open an account

Once you've chosen a brokerage, you’ll need to open an account. This usually involves filling out an online application where you’ll provide personal information such as:

  • Name

  • Address

  • Social Insurance Number (SIN)

  • Employment-related information

Additionally, be prepared to:

  • Answer questions about your investment experience: This helps the brokerage understand your risk tolerance and investment goals.

  • Provide financial information: Details about your income, net worth, and investment objectives.

  • Upload identification documents: Such as a driver’s license or passport for identity verification.

It is common for the approval process to take a few days.

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Step 3: Fund your account

After your account is set up, the next step is to fund it. You can transfer money from your bank account to your brokerage account. Most brokerages support electronic funds transfers (EFT), which are quick and convenient. Some platforms also allow you to link your bank account directly for seamless transfers. Keep in mind that it may take a few days for the funds to appear in your brokerage account. Additionally, some brokerages offer the option to hold US dollars, which can save you on currency conversion fees if you plan to trade US stocks frequently.

Step 4: Research US Stocks

Before you dive into buying, it's crucial to do some research. Look into the US stocks you’re interested in by checking their historical performance, current market trends, and financial health. Most brokerages provide research tools and resources such as analyst reports, stock screeners, and financial news updates. Websites like Yahoo Finance, Google Finance, and Bloomberg can also be valuable sources of information. Understanding the company's earnings, revenue growth, industry position, and future prospects will help you make more informed investment decisions.

Step 5: Place an order

Once you’ve done your research and decided which stocks to buy, it’s time to place an order. Log in to your brokerage account, search for the ticker symbol of the US stock you want to purchase, and go to the trading section. You’ll need to specify the number of shares you want to buy and choose the type of order:

  • Market Order: Buys the stock at the current market price.

  • Limit Order: Buys the stock only at a specific price or better.

  • Stop Order: Sells the stock when it reaches a certain price.

  • Stop-Limit Order: Combines the features of stop and limit orders.

Review your order details carefully before submitting it. Once the order is executed, you’ll own the shares.

Step 6: Monitor your investment

After buying the stock, monitor its performance and stay updated with any news or developments related to the company. Most brokerages offer tools to track your portfolio and set up alerts for significant price changes or news events. Reviewing quarterly earnings reports, analyst ratings, and industry trends can provide insights into how your investment is performing and whether you should hold, sell, or buy more shares.

How much does it cost to invest in US Stocks in Canada?

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Investing in US stocks from Canada is an appealing option for many investors looking to diversify their portfolios. However, understanding the associated costs is crucial for making informed investment decisions.

Key Costs to Consider when investing in US Stocks

  • Brokerage Fees

Most Canadian brokers charge fees for buying and selling US stocks. Typically, these can range from $5 to $30 per trade, depending on the platform you use. Some brokers also offer commission-free or very low commission fees, but there may be other costs.

  • Currency Conversion Fees

When purchasing US stocks, you'll need to convert your Canadian dollars (CAD) to US dollars (USD). Conversion fees usually range from 1% to 3% of the transaction amount. Using a broker with a favorable exchange rate or a USD-denominated account can help mitigate this cost.

  • Account Maintenance Fees

Some brokers charge maintenance fees for holding an account that trades in US Stocks. While these fees can be as low as $25 annually, they may vary depending on the account type and broker.

  • Foreign Dividend Withholding Tax

Dividends from US stocks are subject to a 15% withholding tax as set by Canada’s tax treaty with the U.S.. This is automatically deducted before the dividend is paid out.

  • Currency Fluctuation Risks

Exchange rates between CAD and USD can fluctuate, impacting the value of your investments and returns. It’s wise to keep abreast of these fluctuations and consider their potential impact on your investment.

Strategies to Minimize Costs when trading US stocks in Canada

  • Choose the Right Broker

Compare brokerage fees and services to find a broker that aligns with your investment strategy and offers competitive pricing.

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  • Utilize Norbert’s Gambit

A technique to minimize currency conversion fees by simultaneously buying and selling a stock or ETF in CAD and USD. This strategy is not efficient for everyone, depending on factors such as the amounts involved.

  • Open a USD Account

Some brokers offer USD-denominated accounts, allowing you to avoid frequent currency conversion fees.

How are stocks taxed in Canada?

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In Canada, stocks are taxed primarily through capital gains, where 50% of the gain is taxable and added to your income at your marginal tax rate. Capital gains occur when you sell an asset for more than its adjusted cost base (ACB), while capital losses, which can offset gains, happen when you sell for less. Different types of investment income are taxed differently: interest income is fully taxable, and dividend income is taxed at a lower rate due to potential dividend tax credits.

To minimize capital gains tax, Canadians can use tax-free or tax-sheltered accounts like TFSAs and RRSPs. TFSAs offer tax-free income and withdrawals, while RRSPs defer taxes until withdrawal, providing immediate tax deductions. Other strategies include tax loss harvesting to offset gains with losses and tracking investment-related expenses to increase the ACB, thereby reducing taxable gains.

Long-term investment holding can reduce the frequency of taxable events, while income splitting with a lower-income spouse can take advantage of lower tax brackets. Additional strategies include using the principal residence exemption for tax-free capital gains on a primary home and donating appreciated securities to eliminate capital gains tax on those securities.

To learn more about capitals gains and tax on stocks in Canada, please read our detailed guide:

How Are Stocks Taxed in Canada

Should I put US Stocks in a TFSA or RRSP?

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Deciding whether to hold US stocks in a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP) hinges on understanding the benefits and drawbacks of each.

In a TFSA, any growth from capital gains or dividends is tax-free within Canada, but U.S. dividends are subject to a 15% withholding tax by the U.S. government, which cannot be reclaimed.

Conversely, an RRSP exempts U.S. dividends from the withholding tax due to the Canada-U.S. tax treaty, allowing you to keep more of your dividend income. Contributions to an RRSP are also tax-deductible, providing immediate tax benefits and allowing investments to grow tax-deferred until withdrawal, usually in retirement.

Choosing between a TFSA and an RRSP for US stocks depends on your financial goals. A TFSA offers tax-free growth but incurs withholding tax on U.S. dividends, making it ideal for short-term goals. An RRSP provides tax-deferred growth and no withholding tax on dividends, making it better for long-term retirement savings.

Learn more about how to choose TFSA or RRSP when investing in US stocks, read our guide:

Should I Put US stocks in TFSA or RRSP

Benefits and risks of investing in US Stocks

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Investing in US stocks offers Canadian investors significant benefits, such as access to the world's largest stock market, which includes a wide range of industries and high-growth sectors like technology and healthcare. This diversification can reduce risk and provide opportunities for better returns. Additionally, holding assets in U.S. dollars can act as a hedge against currency fluctuations, and favorable tax treaties can enhance net returns. The U.S. market's stringent regulatory environment and high liquidity also make it a secure and efficient place for investments.

However, there are risks to consider. Currency fluctuations between the Canadian dollar and the U.S. dollar can impact investment value. Navigating cross-border tax issues can be complex, potentially leading to additional filing requirements. The U.S. market can be more volatile, with significant price swings influenced by global events and political decisions. Changes in regulatory policies and sector-specific risks, especially in technology and healthcare, can affect the stability and profitability of investments. Understanding these factors is essential for making informed investment choices.

See more details about benefits and risks of investing in US stocks, read our guide:

Benefits and Risks of Investing in US Stocks

US stock market holidays

The U.S. stock markets, including the New York Stock Exchange (NYSE) and Nasdaq, are closed on the following holidays:

  • New Year’s Day – Monday, Jan. 1, 2024  

  • Martin Luther King Jr. Day – Monday, Jan. 15, 2024

  • Presidents’ Day – Monday, Feb. 19, 2024

  • Good Friday – Friday, March 29, 2024

  • Memorial Day –  Monday, May 27, 2024

  • Juneteenth National Independence Day – Wednesday, June 19, 2024

  • Independence Day – Thursday, July 4, 2024

    - Early closures: Markets will close early at 1:00 PM ET on Wednesday, July 3

  • Labor Day – Monday, Sept. 2, 2024

  • Thanksgiving Day – Thursday, Nov. 28, 2024

    - Early closures: Markets will close early at 1:00 PM ET on Friday, November 29

  • Christmas Day – Wednesday, Dec. 25, 2024

    - Early closures: Markets will close early at 1:00 PM ET on Tuesday, December 24

If you want to learn more about the US stock market open and close time in detail, see our guide:

US Stock Market Holidays and Trading Hours in 2024

Is it worth buying US Stocks in Canada?

While fluctuations in the U.S.-Canada exchange rate might initially appear as a risk, the investment opportunities available in the U.S. market often outweigh these concerns. The U.S. market features a diverse array of sectors, including technology and healthcare, which are less prominent in Canada. These sectors offer unique growth opportunities that can significantly enhance a Canadian investor's portfolio.

Diversifying your portfolio with both U.S. and Canadian stocks allows you to mitigate risks and capitalize on the strengths of both economies, providing a more balanced and resilient investment strategy. But bear in mind, it also depends on your individual financial situation, goals, and risk tolerance if you decide it is good to invest into US stocks.

If you are still confused, read our guide:

Is It Worth Investing in the US Stock Market

How to trade US Stocks on moomoo in Canada?

Before you get started

  • If you want to open a Tax-Free Savings Account (TFSA), it must be your first account before opening any other accounts. Otherwise, you won't be able to open a TFSA account later on.

  • If you have already opened an Individual Margin Account, you will not be able to open a Registered Retirement Savings Plan (RRSP) account.

moomoo Canada offers 4 types of accounts

  • Individual Margin Account

  • Tax-Free Savings Account (TFSA )

  • Registered Retirement Savings Plan (RRSP)

  • Individual Cash Account

Open an account with moomoo Canada

1. Submit an application in the app, or on moomoo official website in Canada moomoo CA

2. If all the provided information is verified, your account will be approved within 2 business days.

3. If additional documents are requested, instructions will be sent via email.

4. Once approved, an email will be sent containing your account details.

5. Access the Client Portal and update your temporary password.

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Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy.

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