So, you're a US-based investor interested in companies not listed on the OTC. Is it possible for you to trade CSE stocks?
Buying and selling stocks doesn’t have to be complicated. Choosing the right companies to invest in can be tricky, but in terms of trading stocks on the CSE, it is a lot simpler than many make it out to be.
There are a number of ways you can buy and trade stocks, including through a financial institute, a financial advisor or directly from the company you are interested in. There are also a number of stock exchanges around the world to buy and sell stocks on, from major exchanges like the New York Stock Exchange (NYSE), NASDAQ and the Toronto Stock Exchange (TSX) to alternative exchanges like the TSX Venture and the Canadian Securities Exchange (CSE).
The CSE, in particular, has received some major attention in recent years due to a spike in financing and a growing interest in cannabis companies. Let’s look at why the CSE is a good option for investors and how to trade stocks on the CSE.
Why Trade Stocks on the CSE?
The Canadian Securities Exchange (CSE), also known as the Exchange for Entrepreneurs, is a stock exchange operated by CNSX Markets Inc. The exchange, which was established in 2003, is an alternative stock exchange for emerging and micro-cap companies. It was created to strengthen investors' confidence in emerging companies through the use of enhanced disclosure and high regulatory oversight standards.
The CSE has been steadily increasing the number of cannabis companies on its roster due to a growing number of companies operating in the space.
“The CSE has added a good number of cannabis companies in 2017 and 2018,” CSE Director of Listings Development Phillip Shum told SmallCapPower. “Somewhere in the region of 900% growth in terms of financing, mostly on the back of cannabis at this point. We have also seen a good number of US listings as well.”
As of November 2018, the CSE boasted 52 US-related cannabis listings and was able to raise $1.5 billion CAD for US cannabis companies last year.
The exchange now includes 98 cannabis-related companies in both Canada and the US, giving investors a good number of options to choose from. Investors that want to take a hands-on approach to investing can purchase stocks and bonds directly through the CSE.
How US Residents Can Trade Stocks on the CSE
Almost all of the major Canadian discount online brokers are connected to the CSE, however, there is still limited access within the US. The exchange is “actively working on expanding the availability of quotes and online trading access within discount brokerages across North America” to increase access for American investors.
It’s important to note that if you are trading from the US, you will have to first find a broker who is willing to facilitate trades on Canadian stock exchanges. You’ll also want to keep in mind that you’ll have to convert your currency into Canadian dollars before trading, so exchange rates come into play.
The implementation of the Canadian-U.S. Income Tax Convention will also mean your international broker will automatically remove Canadian income tax contributions from your stock sales and dividends. Luckily, Canada and the US have tax treaties that avoid problems commonly that come with international investing, like double-taxation. All investors need to do is apply for the foreign tax credit or deduction on Form 1040 or 1116 with the IRS.
Choosing an Online Brokerage Platform
Regardless of where you are trading from, in order to trade stocks on the CSE, you’ll want to hire a brokerage to facilitate you in the buying and selling of securities. Creating an account with a broker will give you the ability to trade stocks, bonds, ETFs, forex, options, commodities, futures, or mutual funds.
Full-service brokers charge a fee to facilitate stock trading and help you develop a long-term financial plan. Another option is an online broker, which is a lot less expensive, but doesn’t give you advice as a full-service broker would.
There are a number of online brokerage platforms investors can use to facilitate their trades from the US. The fees associated with online brokers vary greatly, so it’s important to do your research and shop around when searching for the best broker for your needs. Here are a couple of popular options:
Questrade offers self-directed investing at a cost of $0.01 per share with a minimum of $4.95 (maximum of $9.95) as well as pre-built actively managed portfolios for a management fee of 25% per month. The company also offers market data packages, from free basic coverage to advanced data packages for $89.95 per month. It is free to open and close your account, but it’s important to be aware of things like inactivity and de-registration fees.
PennTrade is an easy-to-use online brokerage but comes with a hefty $34.95 USD commission for trading Canadian stocks and $19.95 for US stocks. However, this is evened out by the fact that PennTrade doesn’t charge extra for market orders, limit orders, small volume, large volume or stocks under $1.00. The company requires a minimum of $1,500 equity to open an account and allows you to trade US stocks, warrants and ETFs listed on the NYSE, NASDAQ, OTCBB, and Pink Sheets, as well as Canadian stocks and warrants listed on TSX, TSX Venture and CNSX exchanges.
InteractiveBrokers, the most popular US brokerage for international stocks, offers both fixed and tiered pricing, meaning retail and professional investors can use the platform to minimize fees and maximize returns. The minimum balance required to open an account is $10,000 USD unless you are age 25 and under, in which case you only need $3,000. The commission on Canadian trades is only $0.01 per share traded with a minimum commission of $1.00 CAD and a maximum of 0.5% of the trade value.
How to Trade Stocks on the CSE
Once you have an account set up with a broker, you are ready to trade stocks. Buying and selling stocks is referred to as placing an order and can be done in a number of different ways. The two most common options are a market order, where the stock is bought or sold and the latest price, and a limit order, which is when you set a price limit for the highest price you are willing to pay for a stock or the lowest price you will sell at. Limit orders aren’t executed unless the stock hits the price you have specified, while a market order is done instantaneously during market open hours.
You can also choose to place a stop order, which is an agreement to buy or sell a stock when it reaches a certain price. It is different from a limit order because instead of specifying a maximum, they set a minimum price you’ll pay to buy or a maximum you’ll receive when you sell.
Another rare option is the stop limit order which gives you the ability to set a stop price and a limit price for what you are willing to pay for a stock.
There are also trailing stop orders, which allow you to place an order and have the price dynamically adjust to ensure you get the highest return possible. These orders, as well as trailing stop limit orders, are typically used more often when selling and involve entering a trailing amount, which represents the spread from the current price to what you are willing to sell at. Instead of a set price, it’s a fluid price that is determined as a percentage of the current price.
As mentioned, market and limit orders are the most commonly used options. However, it is worth it to do your research on the risks and benefits of each option. Regardless of which type of orders you place, it is a good idea to store your money between trades and accumulate a small amount of interest in the meantime.
If you are planning to trade stocks on the CSE, or any other exchange, it is important to start your journey with plenty of financial market research and education under your belt to minimize risk. Buying and selling stocks is inherently risky, however, those who have a deeper understanding of the stock market are less likely to make common, avoidable mistakes.
Outside of doing a ton of research, you can also opt to start out with a stock market simulator, which will offer you the experience of buying and selling stocks without spending your hard-earned cash. There are a number of simulators out there to choose from that use real data from the stock market and provide you with a virtual cash balance. These tools are also useful for active traders who want to try out different new types of investment strategies.
Featured Image: Depositphotos © kasto
