How to Purchase Stocks in Canada
Most developed nations have their own stock exchanges. When companies within those countries go public and offer shares for trading and investing, the shares are usually listed on a domestic exchange. Until the 2000s, gaining access to exchanges outside your own country required services from a specialized brokerage firm. But as world financial markets have grown closer and more integrated, the demand for foreign investing has increased. There are now many ways for anyone to invest in stocks from another country, including Canada. It is possible to purchase stocks from Canada without much effort.
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Instructions
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Purchase the American depository receipt of a Canadian stock. Because of the immense size of the American stock market, many foreign companies choose to list their shares in the United States to broaden their access to capitalization and encourage worldwide interest in their company. These shares are not actually separate from the shares offered on a foreign exchange. ADR stock is from the company's original outstanding foreign shares. They are repackaged for American investors by using American banks as the intermediary stock holders. When you purchase an ADR, you are purchasing an actual share of the foreign stock, but it is provided through the American exchange.
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Buy shares of a Canadian exchange traded fund. ETFs trade exactly like stocks, but they are designed to track the success of foreign stock markets. An ETF does not provide exposure to an individual company. Instead, it focuses on the overall stock market index of an entire country or a basket of its sectors. ETFs are an effective method for gaining exposure to Canadian stocks without the research necessary to identify individual companies that may succeed. An ETF can be purchased on a domestic exchange without the need for direct access to foreign markets.
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Open a global trading account. These accounts provide direct access to an entire foreign stock market. They allow you to trade on a foreign market with the same flexibility of any resident in that country. ETrade offers a global trading account with access to all Canadian stocks through its innovative website broker interface.
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Tips & Warnings
Only a select few companies outside the U.S. choose to offer ADR stock. But if you seek exposure to one of these, the process is as simple as buying any American stock. Among Canadian ADRs as of April 2010 were Petro-Canada, Cineplex Odean, Canadian National Railway and Horsham Corporation.
The EWC ETF offers the same returns as the overall Candian MCSI stock market index. The XIU ETF tracks a large subset of Canadian stocks and resembles the U.S. S&P 500. The XMD ETF is weighted in favor of mid-cap companies. Other ETFs exist for more specific interests in individual sectors.
One important consideration when trading foreign stock directly---through a global trading account--- is the currency valuation of these equities. They are often listed in their local currency. You may need to make your own currency conversions to understand the impact of these purchases on your account. Some brokers may provide currency conversions for you automatically, but some extra caution should be taken to ensure you fully understand the equivalent value of the stock in your own currency as well as how potential profit targets will convert.
References
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