How to Buy US Stocks in Canada in 5 Simple Steps

The US stocks presents an attractive option for Canadian investors looking to diversify their portfolios due to its thriving economy and a vast array of publicly traded companies,

However, navigating the process of buying US stocks in Canada requires understanding the intricacies of cross-border trading.

This article aims to provide a comprehensive guide on how to buy US stocks in Canada.

It will explore the key considerations, requirements, and steps involved in venturing into the US stock market from Canada.

By gaining insights into the procedures and requirements involved, you can confidently decide whether the US stock market is worth venturing into.

Let’s get started!

Table of Contents

1. Choose a Broker

When buying US stocks in Canada, the first step is to choose a broker.

Choosing the right brokerage is essential as it will serve as your gateway to the US stock market.

Here are the key factors to consider when choosing a broker:

US-stock-enabled broker: Start by researching brokerages that offer Canadians access to the US stock markets.
Evaluate account types and services: Different brokers offer various types of accounts, such as registered and non-registered accounts. Additionally, consider the additional services provided by the brokers, such as research tools, educational resources, and mobile trading capabilities.
Minimum balance requirement: Some brokers allow you to start investing with any amount while others require a minimum deposit.
Compare fees and commissions: Consider the fees and commissions charged by different brokers. These can include trading fees, commissions on trading, account maintenance fees, currency exchange fees, and any other charges.
Consider trading platforms: Assess the usability and functionality of the brokers’ trading platforms. Look for features like real-time market data, order types, charting tools, and ease of navigation.
Check regulatory compliance: Ensure that the brokers are regulated by the Investment Industry Regulatory Organization of Canada (IIROC).

Based on the above factors, the following are some of the best online discount brokerages in Canada:

Qtrade (offers up to a $150 sign-up bonus)
Wealthsimple Trade
Questrade

Learn more:

2. Open a Brokerage Account

After selecting a broker, the next step is to sign up with your chosen brokerage.

This process involves creating an account with the brokerage firm you have selected to facilitate your stock trading activities.

To begin, visit the website of the brokerage you have chosen. Look for a “Sign Up” or “Open an Account” button, which is usually displayed on the homepage.

Clicking on this button will direct you to the account registration page.

On the registration page, you will be required to provide personal information such as your:

Full name
Email address
Social insurance number (SIN)

Additionally, you may need to choose the type of account you want to open. Common options include

Individual accounts,
Joint accounts
Registered accounts (such as RRSP or TFSA)
Corporate accounts.

Select the account type that aligns with your investment goals and needs.

During the sign-up process, you may also need to agree to the brokerage’s terms and conditions, including any fees or commissions that may apply to your trades.

Once you have completed the registration form and provided all necessary information, submit your application for review.

3. Fund Your Account

Once you sign up with a brokerage and your application is approved, the next step is to fund your brokerage account.

Funding your account is essential as it enables you to have the necessary capital to purchase stocks in the US market.

To fund your brokerage account, you typically have several options available. The most common methods include:

Bank transfers
Wire transfers
Electronic Funds Transfer (EFT)
Debit and credit card payments
Certified cheque
Non-certified cheque
Institutional transfer

The specific funding methods can vary depending on the brokerage you choose.

As such, it’s essential to confirm with your brokerage for detailed instructions on how to fund your account.

Additionally, be aware of any minimum deposit requirements that the brokerage may have.

4. Choose Your US Stock

After funding your brokerage account, the next step is to search for and select the US stock that aligns with your investment goals and preferences.

Here’s how you can go about it:

Research and Analysis: Begin by conducting thorough research on the US stock market. Utilize financial news sources, online platforms, and reputable investment websites to gather information about different companies and their stocks. Pay attention to factors such as historical performance, financial health, industry trends, and future growth prospects. Analyze the company’s fundamentals, including revenue, earnings, and debt, to assess its investment potential.
Identify Investment Goals: Determine your investment goals, whether they are focused on long-term growth, dividend income, value investing, or other specific objectives. This will help you narrow down your search and identify stocks that align with your investment strategy.
Due Diligence: Once you have identified a list of potential stocks, conduct further due diligence on each company. Read annual reports, quarterly earnings releases, and news articles to gain deeper insights into their operations, competitive advantage, and potential risks. You may need to consult with a financial advisor or investment professional to gain expert opinions and recommendations.
Make a Selection: Based on your research and analysis, select your favorite US stock that best aligns with your investment goals and risk tolerance.

If you’re looking for a low-cost and diversified way to invest in the US market, condition investing in S&P 500 ETFs. Below are relevant pieces of information to that effect:

5. Buy Your Chosen US Stock

Once you have selected your favorite stock, the next step in buying US stocks in Canada is to place your order to start trading.

This step involves submitting a buy order for the specific US stocks you wish to purchase.

To place your order, you will need to log in to your brokerage’s online trading platform. Here’s a breakdown of the process:

Choose the stock
Select the order type
Specify the quantity
Review and confirm
Place the order

It’s important to note that the execution of your order may be subject to market conditions, liquidity, and other factors that can influence the stock price and the speed of the transaction.

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How Much Does it Cost to Buy US Stocks in Canada?

There are three major costs that come with buying US stocks in Canada — fees, commissions, and taxes.

Understanding these costs is crucial for making informed investment decisions and managing expenses effectively.

Let’s go into the details:

1. Fees & Commissions

Buying US stocks in Canada involves transaction costs in the form of fees and commissions charged by brokerage firms.

These fees can vary depending on the brokerage and the type of account used. Below are the common fees and commissions:

Account Maintenance Fees: Some brokerages may charge annual or monthly fees for maintaining a trading account. These fees can vary based on the type of account and services provided.

Trading Fees and Commissions: Each time a trade is executed, a brokerage may charge a fee or commission. These fees can be a fixed amount per trade or a percentage of the transaction value.
Currency Exchange Fees: Since US stocks are traded in US dollars, Canadian investors need to convert their Canadian dollars into US dollars for purchasing the stocks.

2. Taxes

When buying US stocks in Canada, you also need to consider the tax implications involved. The two primary taxes to be aware of are capital gains tax and withholding tax.

Capital Gains Tax: You’re subject to capital gains tax on the profit made from selling US stocks. The maximum capital gains tax rate is 50%.
Withholding Tax: When receiving dividends from US stocks, you may be subject to withholding tax by the US Internal Revenue Service (IRS). The withholding tax rate is 15% due to tax treaties between the US and Canada. To eliminate the withholding tax, you need to hold dividend-paying US stocks in Registered Retirement Savings Plans (RRSPs). Here are the pros and cons of RRSPs.

Related:

Is It Worth Buying US Stocks in Canada?

Buying US stocks in Canada can be a worthwhile investment strategy for several reasons, but it also comes with its own set of considerations.

Let’s explore both the advantages and potential drawbacks to help you make an informed decision.

The Benefits:

Access to a broader range of investment opportunities
Exposure to global economic trends
Potential for higher returns
Currency diversification

The Drawbacks:

Converting Canadian dollars to US dollars for investing purposes incurs currency conversion costs
Fluctuations in exchange rates can significantly impact your returns
Withholding taxes on non-RRSP accounts

Ultimately, the decision to buy US stocks in Canada depends on your investment goals, risk tolerance, and overall portfolio strategy.

However, it’s always advisable to consult with a financial advisor or investment professional who can provide personalized guidance based on your specific circumstances.

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