While US companies are among the most innovative and valuable in the world, Canada has its fair share of highly profitable and fast-growing companies, too. US investors might be familiar with Canadian behemoths like Shopify (based in Ottawa) or TD Bank (based in Toronto), but these are just the tip of the iceberg. Canada has thousands of public companies ranging from well-established giants to fast-growing startups.
In this guide, we’ll cover everything you need to know about how to buy Canadian stocks.
What is a Stock Exchange?
In order to understand why Canadian stocks aren’t side-by-side with US stocks at most brokerages, it’s important to understand how stock exchanges work. Stock exchanges are marketplaces where companies and investors can come together in a regulated environment. They facilitate the process of companies listing shares, and provide a minimum set of rules for what information companies must provide to investors.
In most cases, stock exchanges are regional or national. For example, the New York Stock Exchange (NYSE) and NASDAQ typically carry shares of US companies (with a few exceptions). Meanwhile, the Toronto Stock Exchange typically carries shares of Canadian companies.
Canadian Stock Exchanges
The Toronto Stock Exchange (TSX) is by far the largest exchange in Canada. The total value of stocks listed on the TSX is nearly $3.2 trillion – although that’s much less than the $30 trillion value of the NYSE.
There are also stock exchanges in Montreal, Vancouver, and Alberta, although these are smaller exchanges that largely carry Canadian penny stocks. Candian stocks also trade on the Canadian Securities Exchange, an alternative exchange with minimal listing requirements that mostly hosts micro-cap companies, and on the NASDAQ Canada exchange.
Why Invest in Canadian Stocks?
The main reason to invest in Canadian stocks is that Canada has a thriving economy similar to the US. Looking across the border for growing companies offers investors more opportunities. In addition, the Canadian stock market sees much less attention from retail investors compared to the US market, so companies may be more likely to be undervalued.
One thing to keep in mind is that Canada’s economy is closely tied to the fate of the US economy, since the US is Canada’s largest trading partner and main source of foreign investment. So, investing in Canadian stocks likely won’t provide much diversification for your portfolio if you are already invested in the US stock market.
How to Invest in Canadian Stocks
There are a few different ways for US investors to buy Canadian stocks.
Investing in Individual Stocks
The first way is to invest in individual Canadian stocks. Most brokers carry popular Canadian stocks like Shopify and TD Bank that are listed on both the NYSE and the Toronto Stock Exchange. In this case, you can simply buy shares from the NYSE.
If you want to invest in a Canadian stock that’s only listed on the TSX or another Canadian exchange, you’ll have to see if your broker offers trading on these exchanges. Specific US brokers that allow you to trade TSX-listed shares include:
- TD Ameritrade
- E*TRADE
- Webull
- Interactive Brokers
- Merrill Edge
Notably, Robinhood doesn’t allow you to directly trade shares on Canadian exchanges. However, you can still invest in Canadian stocks through American Depository Receipts (ADRs). These give you exposure to a stock’s price and offer dividend payments, but ADRs do not confer ownership in the underlying company like stock shares do.
Investing in ETFs with Exposure to Canadian Companies
You can also invest in Canadian stocks through ETFs. Many brokers carry ETFs that mirror the TSX Composite Index, which includes the 250 largest companies listed on the TSX. There are also ETFs that mirror the TSX Venture Composite Index, which includes 500 fast-growing Canadian companies that are not listed on the TSX itself.
Many international ETFs or sector-specific ETFs also have exposure to Canadian companies. Since Canada has a large mining industry, a lot of mining- and commodity-related ETFs are heavily weighted towards Canadian stocks.
Conclusion
Canada is home to thousands of mature companies and fast-growing startups, many of which are listed on the Toronto Stock Exchange and alternative exchanges around the country. For US investors, Canadian stocks might not offer diversification, but they can offer more options than what’s available on the NYSE and NASDAQ exchanges.
Most major US brokers offer trading on TSX-listed shares, so you can buy individual Canadian stocks just like you would US stocks. You can also invest in Canadian companies through a variety of index-tracking and sector-specific ETFs.
