What are the trading fees?

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    When you place a trade on a US-listed security in your Canadian dollar account, your broker will automatically convert that transaction into US dollars. As with Wealthsimple Trade, on most other brokerage platforms, investors typically pay around 1.5% to convert loonies into US dollars – but most of them also allow investors to hold US dollars. This means that investors can avoid expensive currency conversion fees on their trading account by funding the US dollar side of their account and then trading US-listed securities from there.

    The best way to convert Canadian dollars to US dollars (and vice versa) is using a technique called Norbert’s Gambit. Justin Bender, Portfolio Manager at PWL Capital in Toronto, shows investors how to make Norbert’s move across multiple investment platforms – check out the video tutorials on his Canadian Portfolio Manager blog.

    Norbert’s move involves using the Horizons US Dollar Currency ETF (DLR). Bender says this ETF – which is equivalent to holding US cash – comes in two versions. Both are traded on the TSX, but the first, with the ticker symbol DLR, is bought and sold in Canadian dollars, while the second, DLR.U, is traded in US dollars. These ETFs allow you to convert Canadian dollars into US dollars and then use the proceeds to buy US-listed securities.

    What types of accounts to use

    As many new investors have found, opening an unregistered (taxable) trading account is quick and easy. In addition, some investors judiciously use an unregistered account for the “Explore” portion of their “Core and Explore” portfolio.

    The challenge with using a taxable account for your day trading adventures is that you need to carefully record your transactions. Don’t expect your brokerage platform to do this for you.

    Every time you trade on a taxable account you create a taxable event – either a capital gain if you made money trading, or a capital loss if you weren’t that lucky. And if one of your stocks pays dividends, that’s taxable income, too.

    Traders need to keep an eye on their capital gains and losses, as well as their investment income. They also need to keep track of their “adjusted cost base”. When buying stocks of the same stock over time and at different prices, you need to keep track of the average cost. Failure to do so will create a huge headache in tax time.

    If you have an unregistered account and are not too savvy with spreadsheets, I recommend the adjustiertecostbase.ca website where you can calculate your adjusted cost base and capital gains for free using their online tool.

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