There are, at last count, approximately 3,592 online brokerages in Canada. Or 12. I forget.
For the most part, these companies all pretty much do the same thing. They buy and sell stocks on your behalf. They offer research services. They’ll hold your money securely. Somebody will answer when you call in. And so on.
But that doesn’t mean they’re identical. Some really shine when it comes to active trading or borrowing to invest. Others are great for people who just invest in ETFs. Some are a little more expensive but make up for it by offering superior research or someone who picks up after only two rings, promise. And one will even massage your bald head. Really. Kevin O’Leary approves.
Canada’s online brokerages are not a one stop fits all approach. If you’re a certain kind of investor, you should be using a certain kind of brokerage.
The ETF guy
So you’re the kind of guy who only buys ETFs, huh? What’s wrong, pussy? Scared of a little risk? INDIVIDUAL STOCKS ARE BETTER THAN METH, MAN.
What you’re looking for is an online brokerage who lets you trade ETFs for free. Questrade is the obvious choice. It lets you buy ETFs without paying a fee, but you’ll have to pay the usual commission to sell them. Questrade is one of Canada’s cheapest online brokers, so paying a maximum of $9.99 to sell ain’t a big deal.
Virtual Brokers also offers the ability to buy ETFs for free. I’ve heard terrible things about its service, however, so it only gets second place. I say ETF investors should go with Questrade.
Most other brokerages offer some ETF trading for free, but selection is limited to weird ETFs nobody cares about. No, Scotia iTrade, I don’t give a crap about buying the iShares Silver Bullion ETF for free.
The margin guy
Do you regularly use margin to invest? Then there’s only one choice. Interactive Brokers is the ticket.
Interactive Brokers charges 2% on the first $140,000 borrowed (Canadian Dollars) and then drops that down to 1.5% for any amount borrowed on top of that. The other brokerages charge between 4% and even as high as 8%. Good luck getting rich if you’re borrowing at 8%.
Note that Interactive Brokers will charge you inactivity fees if you don’t generate $10 per month in commissions. The inactivity fee is $10 minus any commissions for the month. So if you paid $4 to trade a stock and then did nothing for the rest of the month, the inactivity fee is $6. These fees are waived for the first three months you have an account and accounts that are worth more than $100,000.
The occasional investor
I’m going to give the nod here to Qtrade, which is well known for giving the best service. I’m a Qtrade client and I get great service 95% of the time.
The cost per trade is competitive too. They charge $8.75 per trade, welcome relief for those of us who suffered through the days of being charged $19.99 (plus $2 for a limit order!). I do hold a grudge. Bastards.
The active trader
Virtual Brokers used to be the best for active traders, charging just a penny per share. But they’ve since abandoned that cost structure. It costs $4.99 per trade if you’ve done more than 150 trades in the previous quarter.
Interactive Brokers is the ticket here. They charge a penny per share in Canada up to a maximum of 0.5% of the trade value. It’s even cheaper in the United States; Interactive Brokers charges half a cent per share up to a maximum of 0.5% of the trade value.
Most other brokerages offer deals for active traders, but they won’t be as good as Interactive Brokers.
Dividend growth investors
Virtual Brokers offers a plan where for $1 per month you can have them automatically reinvest your dividends into more shares. It’s much simpler to do it that way versus obtaining shares through the transfer agent. All you do is buy the stock in the first place and then tell Virtual Brokers you want them to reinvest the dividends for you. Easy.
Interactive Brokers is also a pretty good deal for dividend growth investors, but keep in mind you’ll have to reinvest everything manually. At least your fees will be low.
I mention this because Interactive Brokers sucks balls for RRSP plans. You have to pay $12.50 per quarter as a service fee, plus the regular $10 per month account fee (which can be waived as I discussed above). If you’re going to move to Interactive Brokers, don’t bother taking your RRSP there.
TFSAs don’t have any additional fees, so I can see having your TFSA there if you’ve already got a margin account. If not, don’t bother.
I have a TFSA at Questrade. I’d say it’s a good choice if you’re only investing inside of a TFSA or RRSP. Keep in mind that Questrade will charge you a $25 inactivity fee if you haven’t traded for a whole quarter and you have less than $5,000 in assets.
Let’s wrap it up
You’ll notice there aren’t a lot of big bank online brokerages on here. It’s nothing against the big banks, it’s just that their offerings are pretty average at best. If you’re an occasional investor or somebody who invests in their TFSA or RRSP only, I guess going with your bank can be okay. But you can probably do better.
The lesson here is that each online brokerage is suited for a different type of customer. You’ll pay more fees if you choose the wrong one.