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Best CFD Brokers in Canada for 2023

If you’re interested in trading the financial markets, you may have come across CFD trading. CFDs, or Contracts for Difference, are derivative products that allow traders to speculate on the price movements of underlying assets without owning them.
CFD Trading
In Canada, CFD trading has become increasingly popular due to its accessibility, flexibility, and lower costs compared to traditional trading. However, it’s important to understand the risks involved before you start trading. In this article, we’ll explore CFD trading in Canada, including its benefits, risks, and frequently asked questions.

Compare Top Canadian CFD Brokers

  1. FP Markets – Best Canadian CFD Broker Overall
  2. Avatrade – Best CFD Fixed Spread Broker
  3. FXCC Broker – Top High Leverage CFD Broker in Canada
  4. IFC Markets – Popular CFD Trading Platform
  5. Fusion Markets – Top Low Cost CFD Provider in Canada
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What is CFD trading?

CFD trading is a type of derivative trading that allows traders to speculate on the price movements of various financial instruments. When you trade CFDs, you are essentially entering into a contract with a broker, agreeing to exchange the difference in the price of an asset from the time you open the trade to the time you close it. If you believe the price of an asset will go up, you can go long (buy) the CFD, and if you believe it will go down, you can go short (sell) the CFD. You can trade CFD in different categories of assets; some of the assets are:

  • Spot metals
  • Commodities
  • And Forex

CFD trading is a kind of derivative trading. As a result, it derives its values from how the underlying asset moves.

Is CFD trading legal in Canada?

Yes, CFD trading is legal in Canada. However, it’s regulated by the Canadian Securities Administrators (CSA), which sets rules and standards that brokers must follow to ensure that CFD trading is conducted in a fair and transparent manner. Brokers offering CFD trading in Canada must also be registered with the relevant provincial or territorial securities regulator.

How Does CFD Trading Work?

To trade CFDs, you need to open an account with a broker that offers CFD trading. You’ll then need to select the underlying asset you want to trade and decide whether to go long or short. When you open a CFD trade, you’ll be required to put up a margin, which is a percentage of the total value of the trade. The margin acts as collateral and ensures that you have enough funds in your account to cover any potential losses.

If the price of the underlying asset moves in the direction you predicted, you can close the trade and take a profit. If it moves against you, you may be required to put up additional margin to keep the trade open, or you may be subject to a margin call where the broker closes the trade for you to prevent further losses.

How does CFD trading differ from traditional trading?

  • In traditional trading, you need to own the asset before you can trade it. This is never the case when you trade CFD. In CFD, there is no need to own the asset before you can trade it.
  • When you trade CFD, you can make a profit when the value of the asset goes up or down. In traditional trading, a fall in the value of the asset you own can put you in debt.
  • Traditional trading can be costly. However, CFD trading is not as costly as the traditional form.

Pros of CFD Trading

  1. Accessibility: CFD trading is available to anyone with an internet connection, and there are no restrictions on who can trade.
  2. Leverage: CFDs allow you to trade with leverage, which means you can control a larger position with a smaller amount of capital. However, this also means that your potential losses can be magnified, so it’s important to use leverage with caution.
  3. Diversification: CFDs allow you to trade on a wide range of financial instruments, which can help you diversify your portfolio and spread your risk.
  4. Flexibility: CFDs allow you to go long or short on an asset, which means you can profit from both rising and falling markets.
  5. Low Costs: CFD trading in Canada is generally cheaper than traditional trading, as there are no commissions, and the spreads are often lower.

Cons of CFD trading

  1. High Risk: CFD trading is high risk, and you can lose more than your initial investment if the trade goes against you. It’s important to have a solid understanding of the risks involved before you start trading.
  2. Leverage: While leverage can amplify your potential profits, it can also magnify your losses. It’s important to use leverage with caution and only trade with money you can afford to lose.
  3. Volatility: CFD trading can be highly volatile, with prices changing rapidly and unpredictably. This can make it difficult to predict price movements accurately.
  4. Counterparty Risk: When you trade CFDs, you’re entering into a contract with a broker, and you’re relying on the broker to honor the contract. If the broker goes bankrupt or is unable to meet its obligations, you may not receive the profits you’re owed, or you may even lose your entire investment.
  5. Market Risk: CFD trading is subject to market risk, which means that factors such as economic and political events, as well as supply and demand, can affect the price of the underlying asset.

CFD Trading Regulations in Canada

CFD trading is legal in Canada, but it’s regulated by the Canadian Securities Administrators (CSA). The CSA is an umbrella organization that coordinates and harmonizes securities regulation across Canada. The CSA sets rules and standards that brokers must follow to ensure that CFD trading is conducted in a fair and transparent manner.

Brokers offering Contracts for Difference(CFDs) in Canada must be registered with the relevant provincial or territorial securities regulator. They must also provide clear and accurate information to clients about the risks and costs involved in CFD trading. This includes information on margin requirements, leverage, and fees.

CFD Trading tax Canada Guide

CFD trading in Canada is subject to taxation. The Canada Revenue Agency (CRA) considers CFD trading to be a form of speculative investing, and any profits or losses must be reported on your tax return.

If you are a resident of Canada, you are required to pay taxes on any profits earned from CFD trading. The tax rate varies depending on your income level and the type of investment, but it can range from 20% to 50%.

It’s important to keep accurate records of your CFD trading activity, including all profits and losses, as well as any fees or expenses related to the trades. This will help you calculate your tax liability and ensure that you are in compliance with CRA regulations.

If you are unsure about how to report your CFD trading activity on your tax return, it’s a good idea to consult with a tax professional who can provide guidance and help you minimize your tax liability.

How to start trading CFDs in Canada?

There are certain steps to consider before you can start trading CFD in Canada. We will look into these steps below:

How to start trading CFD

Choose an instrument

We mentioned above that you can use CFD trading in several instruments. So, you need to choose the instrument you prefer. Some of the available instruments are:

  • Commodity CFDs
  • Index CFDs
  • Cryptocurrency CFDs
  • Share CFDs
  • Forex CFDs

The CFD you choose depends on the area where you have good knowledge. It also depends on the trading strategy that you have. If you have limited experience with the one to choose, you can partner with experts for help. The factors surrounding that asset can also help you to make the right choice. Is the trading cost high or low?  Does it have a history of profitability?

Choose a position

After you make the choice above, the next thing is to choose a position before you venture into CFD trading in Canada. Choosing a position is the actual trading activity. If your strategies suggest that the value of the asset will rise, you can choose a buy position. If the reverse is the case, then you can choose a sell position. Another name for a buy position is “going long”. Another name for a sell position is “going short”.

You can use indicators to help you choose the right position. The CFD brokers can provide you with signals, charts, and indicators to help you make the right choice. At the same time, no signal or indicator is correct 100% of the time.

When trading CFDs, you also need to determine the size of that position to trade. You can do this by calculating the number of CFD units that agree best with the strategy you are using.

Choose the best CFD trading platform

You can trade CFD on either MT4 or MT5 trading platform. The trading platform is available on desktop, laptop, and mobile devices. You can also access a WebTarder platform. Some other brokers offer proprietary trading platforms. The trading conditions differ from one trading platform to another.

Final Word

From the above, you would have learned a thing or two about CFDs and how to open a CFD account. If you want to make a regular profit from trading CFD, you should choose your broker carefully. Additionally, you should practice your trading strategy extensively before you go into live trading. Top CFD brokers in Canada offer demo accounts that can help you to better understand how to use your preferred strategy.

CFD trading can be a convenient and cost-effective way to access the financial markets in Canada. However, it’s important to understand the risks involved and to choose a reputable and regulated broker. By doing your research and developing a solid trading strategy, you can increase your chances of success in the exciting world of CFD trading.

CFD Trading Canada FAQs

Is CFD trading legal in Canada?

Yes, CFD trading is legal in Canada, but it’s regulated by the Canadian Securities Administrators (CSA).

Can I lose more than my initial investment when trading CFDs?

Yes, you can lose more than your initial investment when trading CFDs. CFD trading is high risk, and you should only trade with money you can afford to lose.

What is the minimum deposit required to start trading CFDs in Canada?

The minimum deposit required to start trading CFDs in Canada varies depending on the broker. Some brokers require a minimum deposit of $100 or less, while others require a higher minimum deposit.

Are there any fees associated with CFD trading in Canada?

Yes, there are fees associated with CFD trading in Canada. These include spreads, financing charges, and overnight fees. It’s important to understand the costs involved before you start trading.

How do I choose a CFD broker in Canada?

When choosing a CFD broker in Canada, it’s important to consider factors such as regulation, fees, platform features, customer service, and educational resources. You should also read reviews and compare different brokers to find the one that best meets your needs.

Martin Jekic - Forexcanada
Written by: Martin Jekic , Forex Expert Fact checked by: Aron Smith, General Manager at Forexcanada
Last Updated Feb 23, 2024, 10:00 AM ET