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Forex Brokers Accepting Canadian Clients

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The Canadian forex market is slightly different from that of the US and other more popular jurisdictions. This is because the primary forex market regulation occurs within the various provinces, despite the existence of a national regulatory agency. There are also differences in regulatory requirements, meaning that what operates in one province may not necessarily be the case in another.

The centralized agency works like an industry self-regulator; this is the Investment Industry Regulatory Organization of Canada. However, this agency does not do the trench work regarding regulating the forex industry in Canada. In 2023, a change will occur in Canada'sCanada's regulatory space as the Mutual Fund Dealers Association, and the Investment Industry Regulatory Organization of Canada (IIROC) will be merged. It will function as a single national regulator in Canada. This change will occur on January 1, 2023, and this new entity will be called the New Self-Regulatory Organization of Canada.

But why is this background necessary? Forex brokers accepting CA forex clients (outside of Canada) have evolved due to some of the issues local traders face regarding regulation and other forex-related issues. This article will indicate who these brokers are and what benefits they bring to CA forex clients.

The Forex Industry in Canada: Matters Arising

What is the state of forex trading in Canada in terms of regulation and the conditions under which individuals can trade forex? Each province has its regulatory protocols. We will use an example from Alberta, which houses several commodities and financial trading firms in Canada.

Entry Requirements

You cannot just wake up and trade forex in Canada. You will need some official authorization to be able to do so. Let us take Alberta as an example. Anyone wishing to trade forex in Alberta must show a net income of $200,000 over the previous two years and must also have at least $1m in the investment portfolio. An investment of at least $5m in properties or real estate is also required.

All this to trade forex, you may be asking. Yes. The truth is that in Alberta, retail forex trading is actively discouraged. To trade forex, you must become an accredited investor, which demands fulfilment of the criteria spelt above. Regulation of forex trading activity in Alberta is via the Alberta Securities Commission or ASC.

There are other provincial regulators of the forex market in Canada. These are:

  • Ontario Securities Commission, which oversees FX trading in the Toronto area.
  • British Columbia Securities Commission.
  • Autorite des Marches Financiers regulates FX trading in the Montreal and Quebec regions.

Leverage Requirements

The regulatory requirement on leverage provision by forex brokers is that the maximum leverage is 50:1. This is more liberal than in the UK, Europe and Australia. But this remains a steep leverage requirement. Leverage of 50:1 means that the trader must provide a margin of $2,000 for a Standard Lot position on a currency pair such as the USD/CAD. It also means that the minimum startup capital required of CA forex clients on most locally based forex brokers will be in the 5-digit range. For CA forex clients, forex brokers accepting CA forex clients (outside of Canada) become an attractive proposition when considering the steep margin requirement and the high minimum entry bar to become a retail forex trader. But it does not end there.

Taxes

Forex trading activity in Canada is subject to taxation. You must be prepared to pay up to 50% of your profits as tax to the government. This is how it works.

There is a classification applied to income earned from trading activity. This investment income will depend on whether you are an "investor" or "day trader." An investor buys and sells assets in the financial market. The filings must report all profits and losses, and 50% of all capital gains are subject to tax at marginal rates. Profits and losses from day trades are treated as business income and are not subject to capital gains. So 100% of all profits of day trades are taxed at marginal rates. 100% of losses are deductible from taxables on other income, but these must be filed with appropriate documentation with the Canada Revenue Agency (CRA). The documentation must include:

  • Asset traded
  • Date(s) of purchase and sale of the security
  • Entry and Exit price
  • Trade size

Filing taxes derived from investment trading activity with the CRA has always proven to be a most confusing task for many CA forex traders. Many do not know the requirements; when they do, harnessing the information required in the documentation can prove to be a hassle. However, there is a solution to this, and it will be highlighted below.

Forex Brokers Accepting CA Clients (Outside of Canada): What CA Forex Clients Stand to Gain

The challenges facing Canadian forex traders have been identified in the previous paragraphs. These challenges can be surmounted when you use forex brokers accepting CA clients (outside of Canada). This is what these forex brokers bring to the table concerning dealing with some of these challenges.

  1. The forex brokers accepting CA clients give Canadian traders unlimited access to the MT4 and MT5 trading platforms. These platforms are made by a Russian company (Metaquotes), and because of the Russia-Ukraine war, the platform has been taken off the Apple app store. When you use the forex brokers accepting CA clients (outside of Canada), you will have access to these platforms and all the associated plugins and software available on the MQL marketplace.
  2. As you move from one province to another, the differences in regulation can be a pain for CA forex traders. Trading with forex brokers accepting CA clients (outside of Canada) eliminates these differences due to more harmonized regulatory requirements.
  3. The issue of tax compliance and the requirements for investors and day traders can make for a very confusing mix for CA forex traders. The Canadian Revenue Agency (CRA) requires a lot of documentation when capital gains tax (investors) or business income tax (day traders) are to be filed. Luckily, the forex brokers accepting CA clients already have internal systems where all information required can be downloaded via a click of a button directly from the account history or the members' area. Some brokers even send daily, weekly and monthly account statements, making it very easy to track every transaction. All transaction details, such as the currency pair traded, entry and exit price, lot size and other relevant information (such as time of entry and exit) are all captured in these statements.
  4. The size of the minimum capital base in a forex account required to run successfully on a 50:1 leverage has always been a concern to many CA forex clients. Look at the Alberta province's example. How many retail traders can provide such funds to trade with an ASC-recognized forex broker? The truth is they cannot. This is why the forex brokers accepting CA clients (outside of Canada) have become a destination for such traders. These brokers do not require the trader to come up with the sums required in Canada as the minimum account deposit. Forex brokers accepting CA clients (outside of Canada) can provide lower entry requirements in terms of minimum account deposits. This way, they expand market access and grant opportunities to more CA forex clients than would have been the case.
  5. The leverage provided for CA forex traders is capped at 50:1. This puts a steep requirement on CA forex clients when trading with homegrown investment dealers. The forex brokers accepting CA clients (outside Canada) will ensure that the CA forex clients have access to generous leverage provisions. Leverage up to 500:1 is guaranteed, reducing the margin requirements for trades. This also translates into lower account deposit requirements as the trader would not need so much money to maintain the margin required.

Conclusion

Forex brokers accepting CA clients (outside of Canada) evolved out of situations that made the position of many Canadian retail forex traders untenable. From high margin requirements to problems with filing of taxes to steep minimum entry requirements, Canadian retail forex clients found themselves facing a situation of being priced out of the market. The forex brokers accepting CA clients (outside of Canada) present a solution to the identified problems. Feel free to select any of these brokers from our curated list.