How to Day Trade in Canada

Learn how to day trade in Canada using IFC Markets as your forex trading platform.

Volatility and price swings in forex markets can make day trading risky and complex for beginner traders. However, if executed well, day trades can be profitable.

Taking advantage of the price swings and volatility requires having a well-defined trading strategy. In this article, Benzinga takes a look at how to day trade in Canada, including the best times, the benefits and the tax implications for day traders. Let's dive in!

What is Day Trading?

Day trading is a trading strategy where a trader buys and sells securities within the same day. In forex trading, day traders do not hold positions overnight. Instead, they try to capitalize on short-term price movements and volatility in currency pairs to make gains. Before the close of the market, they exit and close out all positions.

What You Need to Start Day Trading Forex in Canada

Canada has many platforms available for trading forex, and here’s what you need to get started as a day trader.

Forex Brokerage Account

The only way to day trade forex in Canada is to open a forex brokerage platform. When choosing a day trading platform, specific criteria should guide your decisions. Factors such as licensing, spreads, payment choices, withdrawal options and investing account types are some of the features to evaluate.

Research Tools

Forex is a highly volatile and complicated market. Before choosing a currency pair or trading strategy, you need to conduct research. Using research tools such as charting software, technical indicators, volatility calculators and an economic calendar can help guide your trading decisions.

Knowledge of Forex Trading Strategies

You would also need knowledge of forex day trading strategies to be a day trader. While this may come from reading trading books, the best way to gain knowledge is by getting your hands dirty. You can study the market in-depth and test out strategies through paper trading. Paper trading offers you a virtual account to test your approach.

Risk Management Strategies

Managing risk is an essential skill if you want to be successful as a forex trader. One way to manage risk in day trading is by using stop-loss or take-profit orders. This practice limits your losses or locks in profits when the price reaches a predetermined level.

How to Day Trade Forex in Canada

Day trading forex in Canada is relatively easy to start. After you have opened your brokerage account, trading platform and conducted research on which currency pairs to trade, you can then proceed to place your trades. Price quotes come with a spread between the bid price and the ask price. They are usually measured in pips, which stands for percentage in point — the smallest unit of measurement for currency moves. Take note of the pips and spreads before placing a trade as they can determine the magnitude of your profits or losses. Keeping a forex trading journal can help you track and monitor traders to better develop a day trading strategy.

Best Time to Day Trade in Canada

Certain times of the day may be better to trade — when activity is high due to an increase in trading volume, it can create more opportunities for day traders to capitalize on volatility and price swings. This usually occurs when two markets overlap – one market is coming to a close and another one is opening. Given this, the busiest time to day trade forex is when the New York and London markets overlap (8 a.m. to noon EST).

Day Trading Rules Canada

Day trading in Canada is impacted by the superficial loss rule. A superficial loss is when you sell a security at a loss and reacquire it within 30 days. This rule states that when a superficial loss occurs, you cannot claim a capital loss. This means you won't be eligible to deduct that loss from your income taxes.

Tax Implications of Day Trading Forex in Canada

Depending on if you are an individual or a business, day trading forex in Canada has tax implications. Let's look at some of the day trading taxes that may affect forex traders.

Income Taxes

Day traders registered as sole proprietors or corporations are expected to pay income tax because gains are viewed as business income. Day trading income tax must be reported on your personal or corporate income tax return. If the Canada Revenue Agency (CRA) deems your day trading income as business income, you might be exempted from capital gains tax.

Capital Gains Taxes

If you are a retail trader, capital gains on day trading activities have a tax rate at 50% at your marginal tax rate.

Benefits of Day Trading Forex in Canada

Several benefits come with day trading forex in Canada.

• No overnight risk: The forex market is a 24-hour market with trading activity around the clock. Keeping positions open overnight can expose you to price swings while you’re sleeping. Since day traders close out their trading positions before the close of the market, they are not exposed to overnight risks. As such, they don’t need to worry about an overnight news event they can’t react to that may result in losses.
• Greater control of your time: With day trading, you have greater control over your time. You set your schedule and trade when you want. You can also use trading bots to do the trading for you, freeing up your time for other activities.
• Gains can be compounded more quickly: You might be able to use the money you made trading the day before to trade a bigger position the next day and potentially make more money. Your previous profits – if you have them – can be used to grow more profits faster.

Take Advantage of Opportunities as a Day Trader

Whether you are a greenhorn or old hand, day trading forex can be complicated and risky. However, the Canadian forex market presents opportunities that day traders can capitalize on, provided you understand how the market operates and have a sound trading strategy.

Frequently Asked Questions