Canadian or U.S. online brokerage?

[MrTaiChi]

I have never invested in the stock market before, and I am thinking about signing up for an account with Questrade. I'm Canadian and I would like to invest in the U.S. exchanges. That being said, should I sign up with a U.S. online brokerage like optionsXpress? They have a Canadian website optionsXpress.ca, but they are an american brokerage. So if I am primarily trading in U.S. stock exchanges, would it be more beneficial for me to open up an account with optionsXpress rather than Questrade? I'm not sure if my Canadian funds have to be exchanged for U.S. funds before I make a trade in U.S. stock and if so how much does this cost every trade? And depending on which broker I go with (Canadian or U.S.), how does it affect me at tax time? Is it better tax wise(capital gains tax) for me to open with a Canadian or U.S. broker? Any help on this matter would really help me out. Thanks.

[garilou]

Hi, MrTaiChi ,

As far as I know, you can open an US trading account in any online Canadian brokerage. I have, at the same Canadian online broker my RRSP, my CND margin and CND short accounts, and my USD margin and USD short accounts.
If you are a beginner make sure that you have a good phone help service.
I do not want to promote any special one, but I've been with TD Waterhouse since long before online existed (in that time I had to dial my orders on the phone) - the name was not TD Waterhouse in that time-  but the help they give by telephone, just that among other things, is priceless: not sure if you would find that somewhere else: for example, once, at 3:00 AM, the French site did not work well, in 2 to 3 minutes I had a girl on the phone who did not speak French too well, but told me that some servers were closed for service, ans spent 15 minutes with me trying to help and to find out which server did not work properly and how I could connect to another of their servers.

Consider such things before you choose your online broker, and others: what research services do they offer, fundamental AND technical, how reliable the web site is, do they ask you for feed back and if yes do you see a difference?

Any online broker will pass your order in the second if is a market order, but do they care to give you a lower price when you give a limit order? (I always give my orders for more than one day, "all or nothing": I sometimes miss, but most of the time I get it in the same day, and often at least part of it at a lower price than my limit)

But be very carefull with their "home recommendations": too often they recommend a buy with a good target on stocks that are clearly going downward: they have interests in those stocks, that they do disclose, but in very very small caracters 

Also consider if they will provide you with the proper forms and reports when Income Tax time comes.

And most of all, do NOT transfer your RRSP before you are sure you like them: everything is easy and relatively fast to transfer, except for RRSPs!

[MrTaiChi]

Thanks for you reply garilou.

I was wondering since you are with an online Canadian brokerage do you get withheld tax on your U.S. capital gains? And if so do you get Canadian tax credits on that withheld gains tax?

Or because you are with a Canadian broker you are not withheld tax on your U.S. capital gains and do you just have to declare your gains on U.S. trades (just like Canadian trades) come tax time?

[garilou]

Hi again Mr TaiCHI,
As for the withheld taxes, they are not withheld on capital gains: a very small amount (a few cents) is withheld on each sale, weather gain or loss, and I enter it as if it was a higher commission. Capital gains made in Canada, even on US stocks, are declared in your Canadian tax return, because they are not incomes coming from the US, (or foreign income) as opposed to real income coming from the US.
In my case for example, I own Gaz and Oil Royalties in Texas: in that case, taxes are withheld by the companies who pay me those Royalties, and then in my Income tax report, I must enter them as foreign income, and declare the American taxes withheld, and get some credit for those taxes: unfortunately, they retain 30%, an exception to the convention between Canada and the US that says that US income should not be taxed more then 10%: so I do not receive the full credit. But at the price I paid those ($5000 CND) in 1985, what a return!
Every month I receive offers to buy my "properties"!
Ouch! Never!
The first years, they paid like 100$ per month, went down to $40, and now around $240 USD after taxes withheld: I bought them from my mom who had received them from her father. I guess this will stay in the family for generations 

I also have State taxes to pay to Texas as well as School Taxes: those are considered as expenses and are deductible as well as all expenses to pay those though Internet.


Back to the US stocks, the amounts are converted in CND in this way:
The buy is converted at the Canadian Central Bank (CCB) exchange rate for that day.
The sell is converted at the official year average from the CCB published at the end of the year.
And then they are simply compiled together with the Canadian stocks capital gains or losses if you have also traded on Canadian stocks.

Does this answer your question?


I think I forgot to mention: TD Waterhouse charges 9.99 commission only if you have a minimum total capital (including RRSP and all accounts).
Under that, the commissions are higher: usually 29.99 , with special calculations for penny stocks.

Lots of discount brokers do the same, but some offer a very low commission even with smaller total capital. But do they offer all the reports that you get for free on TD?
Even the Royal Bank where my husband used to trade did not offer them: S&P monthly reports and S&P reports on lots of stocks, Insiders INC, Reuters, Argus, and others that are usually very expensive.
A for the technical part, they have Recognia, which send daily alerts.

Gees you could think I'm promoting them, whereas I still oft complain to them. Well, not that often...

But on the whole, for many years, TD has been rated  number one by the Globe and Mail, Now I think they have fallen to number 2.

Good luck, and if you don't mind, I would like to know eventually which broker you have chosen.

Louise

[MrTaiChi]

Hi Louise,

Thanks very much for all of the helpful information. It is much more clear to me now how taxes work on stock sales. I am glad to hear that I can declare my gains in my tax return and not have to worry about a large percentage being withheld on my gains.

When I became interested in trading, I began searching the net for the best online brokerage, whether it was a U.S. or Canadian based brokerage I didn't care just as long as they offered relatively low commission and an easy interface for a beginner like me to learn to trade stocks on. When I was searching I became skeptical of the really low commission brokerages because I was worried how safe my money was with them. As I searched some more I found that brokerage accounts are protected by the Canadian Investor Protection Fund (CIPF). I found several good discount online brokerages, even U.S. based brokerages that take Canadian clients. OptionsXpress(U.S.), ThinkOrSwim(U.S), and Questrade(Canadian) are the few that have caught my eye and I am interested in. From articles and forums I have read, it seems like a lot of Canadians use Questrade as their online discount broker. Questrade is a private company, whereas OptionsXpress and ThinkOrSwim are public. I don't know if this really makes a difference when depicting which companies are "better", but with public brokerages it is nice to know where they stand financially, especially when they are holding your money.

I will also look at TD Waterhouse to see if they are right for my purposes. My experience from searching for the "best" online brokerage is that their is no one best brokerage that encompasses every investor's needs and each of them offer different pros and different cons.

I appreciate all of your help, and I will let you know which brokerage I choose. Hopefully I will decide within the next few days cause I am excited to start trading and I know it takes a while to open and fund a new account.

Ty

[Super Stock Picker]

Hello MrTaiChi,

May I also mention our partner, JITNEYTRADE.

They are proud to offer a first class customer service so I guess that it would a good place to call and have all your questions answered.

You'll find their contacts on the page describing our partnership:
http://www.superstockpicker.com/jitney.php

[garilou]

Hi again MrTaiChi 

I'm so glad I could help you!
[Maybe you could give me an applaud now that I have just learned what it means: http://www.superstockpicker.com/forum/index.php?topic=626.0 ]

Hum, if you let me know what you have chosen, please do it privately, we do not want to do too much promotion here.


Fair game, Super Stock Picker!

I just wanted to talk about those that I knew personally TD Waterhouse and RBC Placements, where I have in the past (on RBC placement I traded sometimes for my husband, and so had unlimited access to their real trading site, which I did not like too much the first years, but has considerably improved in the past years).

As for JITNEYTRADE, they do not appear in the first 15 ranked by the THE GLOBE AND MAIL'S ON-LINE BROKER SURVEY

http://gold.globeinvestor.com/servlet/GIGoldFile/static/brokersurvey/index

But OK, this survey dates from October 2007: are they younger then that?

Anyway I went to visit JITNEYTRADE' s promotional site.
I won't comment: I guess MrTaichi has now all the info needed to make his choice.

Good luck and...  be prudent!

Louise