Discount brokerage

A discount brokerage is a business, registered as an investment dealer, that allow investors to buy and sell securities online. In 2013, there were over 200 brokerage firms in Canada, but the 10 largest firms—eight of which belong to banks and credit unions—generated 85% of the industry's sales.

Discount brokerages, also called online brokers, typically offer both registered accounts and  non-registered accounts. The types of products that can be purchased in these accounts include exchange-traded funds, stocks, bonds, GICs, mutual funds, and others. Therefore, discount brokerage accounts are suitable locations to build investment portfolios for retirement or educational purposes.

Discount brokerages usually allow their clients to trade for their own account with little or no action with a live broker. In addition some brokers offer no-commission trades to their clients that hold a balance greater than a specific amount with them. Typically, discount brokers provide advanced electronic trading platforms which may be appealing to frequent and active traders but may deter some novice investors. Discount brokers charge comparatively low fees but typically do not provide financial advice or guidance and provide instead a service aimed at self-directed investors.

This article first compares discount brokerages to traditional (full service) brokers. Then the types of products offered by discount brokers are listed. Criteria useful to select a discount broker that suits your needs are given. Finally the article discusses the issues of dual currency support (Canadian versus US dollars) and what happens to your account if a broker goes bankrupt.

Discount versus full service brokers
Discount brokers charge clients significantly lower fees than a traditional (full service) brokerage firm but without providing investment advice. Before the advent of discount brokers it used to be that only the wealthy could afford a broker and access to the stock market. However the development of internet and electronic trading helped to develop discount brokers, which allow investors to trade for much smaller fees. Traditional brokers in contrast will often provide financial advice and investment planning as well as related wealth management services.

Available products
The types of products that can be purchased in a discount brokerage account include:
 * Individual stocks trading on the Canadian and US exchanges (common shares and preferred shares)
 * Individual bonds and Guaranteed Investment Certificates (GICs) from the brokerage's inventory
 * Mutual funds, including index funds, ultimately from the fund companies
 * Exchange-traded funds on the Canadian and US stock exchanges
 * Options

Commission and fee structures
When comparing discount brokers, commissions used to be the number one differentiator between online brokerage firms. In the first two months of 2014, a number of Canadian discount brokerages reduced their commission fees below $10 and eliminated minimum account balances or trading activity levels to qualify for this rate. As of November 2016, all 13 biggest discount brokers reviewed by MoneySense have a Basic online equity trading commission under $10. Also, some discount brokers allow commission-free purchases (sometimes sales too) on all or some ETFs.

When choosing a discount broker, you should also check their fee schedule to determine if there are annual fees associated with various accounts (typically registered accounts) and transfer and withdrawal fees. The discount brokers website will typically have a fee schedule available. Some discount brokers waive these fees based on trading activity and/or the total value of the assets with the broker. The total value of assets generally is based on all accounts that have the same mailing address.

Other selection criteria
Because the commissions and annual fees have come down, recent broker reviews emphasize other selection criteria such as the ease of opening an account, ease of navigation, customer service, account reporting, market data and research, innovation, etc. . Depending on which criteria an investor emphasizes, different brokers will be favored.

Dual currency support
Canadian investors can purchase securities on Canadian exchanges and US exchanges. When purchasing and holding securities trading on US exchanges, an important consideration is whether the discount brokerage supports both Canadian dollar accounts and US dollar accounts. The level of support varies between the different discount brokerages. Within a discount brokerage, their level of support may also vary between non-registered and registered accounts such as Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Registered Education Savings Plans (RESP) and Tax-Free Savings Accounts (TFSAs).

Non-registered accounts
A majority of Canadian discount brokers now offer USD RRSP and TFSA accounts About half offer USD RRIF accounts and only two offer USD RESP accounts.

Broker bankruptcy
When choosing a discount brokerage, make sure it is a member of the Canadian Investor Protection Fund (CIPF). In the event of broker bankruptcy, your accounts will be protected for up to $1 million per account category: (1) cash accounts, margin accounts and TFSAs combined; (2) all registered retirement accounts combined, including RRSPs and RRIFs; (3) all registered education savings plans (RESPs) combined.

Specific discount brokerages

 * and
 * and
 * and
 * and
 * and
 * and

Full service brokerages
For a discussion of full-service brokerages, see

Discount broker rankings

 * The Globe and Mail's 17th annual online broker ranking - The Globe and Mail, December 2015
 * Canada's best and worst online brokers in 2014 - The Globe and Mail
 * MoneySense: Canada’s Best Online Brokers 2017
 * MoneySense: Canada’s Best Online Brokers 2016
 * MoneySense: Canada’s Best Online Brokers 2017
 * MoneySense: Canada’s Best Online Brokers 2016

How to build an ETF portfolio at...
A series of YouTube videos from Justin Bender for those who have never used a discount brokerage account:
 * At BMO Investorline
 * At CIBC Investor’s Edge
 * At National Bank Direct Brokerage
 * At Questrade
 * At RBC Direct Investing
 * At Scotia iTRADE
 * At TD Direct Investing

Other

 * Investment Industry Regulatory Organization of Canada (IIROC)
 * Canadian Money Forum, now there are 5 USD RRSPs