If we are going to spend a lot of time reviewing Canadian cannabis stocks, which we will since most cannabis stocks are traded on the TSX or CSE, then investors in the United States will need to know how to go about trading Canadian companies. There is a lot to consider when trading a Canadian cannabis stock, such as exchange rates between the U.S. Dollar and the Canadian Dollar, fees charged by your broker and the exchanges, which brokers even offer the ability to trade Canadian companies or whether to trade the stock over-the-counter (OTC) or to use an American depository receipt (ADR) instead of buying the stock itself on a Canadian exchange.
As an IAR I had the opportunity to work with a lot of different brokers and platforms. I found that Interactive Brokers offered some of the lowest fees, the greatest depth of international markets and Trader Work Station (TWS) was one of the more versatile trading platforms. However, there are quite a few brokers out there and it is really a matter of an individual trader’s preference of what works best for them. I spoke to many people that felt overwhelmed by how may bells and whistles were incorporated into TWS and that found the highly customizable nature of the platform was more of a hassle than a benefit. Here are some details concerning some of the brokers you can choose from.
InteractiveBrokers is the most popular U.S. brokerage for international traders. With both fixed and tiered pricing, retail and professional investors can use the platform to minimize fees and maximize their returns. The minimum balance for individual accounts is $10,000, but those 25 and younger need just $3,000 and IRAs qualify with just $5,000.
PennTrade is an easy-to-use broker, but they charge an expensive $29.95 commission. The upshot is that this commission is offset by no extra charges for market orders, limit orders, large volume, small volume, or stocks trading under $1.00 – and every tenth trade is free. The minimum requirement to open an account is also just $500.
Questrade charges between $4.95 and $9.95 per trade with no minimum balance, but there are a lot of other fees that may be included. There is also a $5.00 flat per-day commission for days where you trade a U.S. dollar security in your account, which means that it’s best when used exclusively for holding Canadian stocks.
Once you have found the right broker to trade international stocks with, now it is a matter of deciding whether to trade the cannabis stock right in the Canadian exchange it trades on, or whether to go with an OTC or ADR alternative. Really, as an investor you want the asset that has the most liquidity to try and get the best price both in and out of the position. Sometimes an ADR or OTC position will charge smaller fees than the stock trading on the TSX or CSE.
An American depository receipt (ADR) is a bank issued negotiable certificate that allows the trader to skip over worrying about exchange rates. The certificate will represent a certain amount of shares of an international company and is a nice alternative as long as it has liquidity. An OTC equity is one that is not being traded on a major exchange. Some people are concerned about there not being as much regulation with OTC markets, but for the most part they are a reasonable alternative, again, as long as they have enough liquidity.
If you elect to trade cannabis stocks right on the TSX or SCE, you need to monitor the currency values between the U.S. Dollar and the Canadian Dollar and become familiar with exchange fees. Also, you will see all prices quoted in Canadian Dollars. As you can see there is quite a bit to consider when trading Canadian cannabis stocks, but if you become familiar with the process and the costs, you will be able to streamline your trading.
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ADRCanadian cannabis stocksCanadian DollarsCSEexchange ratesInteractive BrokersotctsxU.S. Dollar