Forex Trading in Canada

Benzinga readers love IFC Markets and FXCC for all their forex and CFD trading needs in Canada.

Have you ever considered getting into forex trading in Canada? With the potential for high returns, it's an attractive option for many investors. However, there are key factors to consider before diving into this complex and volatile market.

Canada has one of the most heavily regulated forex markets in the world. This gives traders a secure trading environment, but it also limits your ability to trade forex using high leverage ratios.

Before you start trading forex in Canada, it's important to understand the risks and challenges involved. From regulatory requirements to choosing the right broker, there are several factors that can impact your success in this market. In this article, Benzinga explores the ins and outs of forex trading in Canada and provides you with tips and guidelines to help you navigate this exciting yet complex market.

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Disclosure: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% to 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

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How to Get Started with Forex in Canada

Getting started in the forex market is relatively easy despite the strict regulatory restrictions in Canada. Follow these 6 steps:

• Step 1: Obtain a relatively modern device connected to the internet.
• Step 2: Find an online forex broker that accepts clients from Canada.
• Step 3: Open a margin account with that broker.
• Step 4: Deposit funds using a payment method the broker accepts.
• Step 5: Download the broker’s trading platform or a platform you can use with that broker.
• Step 6: Make your first trade.

Forex Trading Strategies

You need a funded account with an online broker that allows you to trade forex from Canada. You also need to develop a trading plan and strategy to increase your chances of success.

Several strategies could work for you depending on your level of expertise in the market. The strategies listed below have shown positive results for retail forex traders whether they’re trading from Canada or anywhere else in the world.

• News trading: This strategy takes advantage of the extreme volatility exhibited by currency pairs after the release of important economic or geopolitical news.
• Scalping: This high-volume strategy involves profiting from very short-term market moves. Scalpers enter and exit the market to capture small profits a few pips at a time.
• Day trading: This strategy limits all transactions to a single trading session. Day traders enter and exit positions intraday but close out all positions by the end of the trading session to avoid the extra risk involved in taking overnight positions.
• Swing trading: The classic “buy low, sell high” trading strategy, swing or momentum trading involves entering and exiting the market based on momentum technical indicators. Swing traders can, and often do, take overnight positions.
• Trend trading: This longer-term trading strategy involves looking for established directional movements called trends and then establishing positions along with the trend until its conclusion.

A downward trend in the USD/CAD currency pair from 1.41403 to 1.33144 that a trend trader could take advantage of. The daily candlestick chart also shows the 10-day moving average and 14-day ADX trend indicators that help traders identify trends. Source: MetaTrader.

Forex Trading Example in Canada

The national currency of Canada is the Canadian dollar. The Bank for International Settlements (BIS) ranks Canada sixth in turnover in the forex market with its 5% market share of average daily turnover.

The resource-based Canadian economy depends heavily on the oil, natural gas and mining industries. As a result, the price of crude oil exerts a significant influence on both the Canadian economy and the Canadian dollar.

If you thought the USD/CAD exchange rate was going to increase from that level, then you might buy $100,000 against the Canadian dollar today at that 1.3650 exchange rate. If the USD/CAD exchange rate then subsequently rose to 1.3950, you would use the following calculation to determine your trading gains:

100,000 USD x (1.3950-1.3650 CAD/USD) = 3,000 CAD

To then convert that amount of Canadian dollar profit into U.S. dollars, you would need to perform the following calculation:

3,000 CAD ÷ 1.3950 CAD/USD = 2,150.54 USD

Alternatively, if the USD/CAD foreign exchange rates had instead dropped to 1.3350, then your trading loss would be:

100,000 USD x (1.3650-1.3350 CAD/USD) = -3,000 CAD

Your loss converted into U.S. dollars at a USD/CAD exchange rate of 1.3350 would be:

-3,000 CAD ÷ 1.3350 CAD/USD = -2,247.19 USD

Making Money with Forex in Canada

Your success depends on the trading strategy that you develop and implement. Successful trading plans can be applied to any trading strategy, from scalping to long-term trend trading. You can also use someone else’s trading plan or copy another trader through a social trading platform.

Copy trading is a popular form of investment education that helps you learn more about the process while following an expert. Remember that copy trading does not guarantee success. You are learning what a successful trader would do. Just as a gambler loses money from time to time, no trader has a perfect record.

Many successful trading plans include objective trading criteria, sound money management principles and a risk/reward analysis. Because of changing market conditions, many initially successful trading strategies may eventually fail to give the same good results.

Compare Online Brokers for Traders in Canada

Forex brokers in Canada must be authorized by Canada's regulatory body, the Canadian Investment Regulatory Organization (CIRO), before accepting forex and CFD traders as clients. The CIRO was founded in June 2023 to consolidate and continue the functions of the Investment Industry Regulatory Organization of Canada (IIROC) and Mutual Fund Dealers Association (MFDA).

Another three provincial agencies also regulate financial markets in Canada:

• Toronto: Ontario Securities Commission
• British Columbia: British Columbia Securities Commission
• Montreal and Quebec: Autorité des Marchés Financiers

When choosing your preferred forex broker, look at things like customer service, offerings, trading methods and spreads. At the top of Benzinga’s list is IFC Market because it offers both a proprietary trading style known as the GeWorko Portfolio Quoting Method and the option to create your own trading method. Each of these forex brokers has been reviewed by Benzinga. Forex, like any other investment, could turn sour at a moment’s notice, so only invest money you are prepared to lose.

Forex Terminology

Forex traders have unique terminology you need to learn before you begin trading. Here are the basics:

• Pip: The acronym stands for point in percentage and represents the smallest movement change in a currency pair’s exchange rate.
• Lot size: A standard lot size is 100,000 base currency units, while a mini lot represents 10,000 units and a micro lot represents 1,000 units.
• Orders: Instructions to execute transactions on your behalf are given to your broker. Various order types exist, such as limit, stop-loss, take-profit and market orders.
• Margin calls: When your trading positions require more funding for you to maintain, the broker will issue you a margin call to deposit additional funds.
• Spreads: The spread is the difference between the bid price and ask price. This difference is where the broker makes money. Of course, you are looking for brokers that offer the smallest spreads.
• CFD: Forex CFD trading, also known as contract for difference (CFD) trading, is a type of derivative trading that allows investors to speculate on the price movements of various financial assets without owning them. With CFD forex trading, investors can take advantage of rising and falling markets by going long or short without actually owning the underlying asset.

Potentially Rewarding Venture

Trading forex in Canada provides a secure and regulated environment for investors. Traders can still take advantage of currency market movements with the right strategy and a reliable online broker. Different trading methods and the influence of the Canadian dollar can create profit opportunities. Success in forex trading requires a well-developed trading plan, objective criteria, money management and risk analysis. Choosing a reputable forex broker is crucial. Diversifying within the Canadian market can be made easier with institutions like the National Bank of Canada. Trading forex in Canada can be a rewarding and secure venture with the right knowledge and discipline.

Frequently Asked Questions