A discount brokerage is a business, registered as an investment dealer, that charges clients significantly lower fees than a traditional brokerage firm but without providing investment advice. Discount brokers typically allow investors to buy and sell securities on-line while offering comparatively fewer services and/or support. In 2013, there are over 200 brokerage firms in Canada. The 10 largest firms—eight of which belong to banks and credit unions—generate 85% of the industry's sales in Canada.
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.
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 typically do not provide financial advice or guidance and provide instead a service aimed at self-directed investors. Traditional brokers in contrast will often provide financial advice and investment planning as well as related wealth management services.
- 1 Available products
- 2 How to choose a discount brokerage
- 3 Dual currency support
- 4 Broker bankruptcy
- 5 See also
- 6 References
- 7 Further reading
- 8 External links
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
How to choose a discount brokerage
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).
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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.
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.
- Low cost investing
- Canadian account types
- Norbert's Gambit
- Interactive Brokers, Bogleheads' wiki
- Canadian Securities Administrators, Guide to Understanding Registration, viewed January 10, 2014.
- RRQ - Securities Brokerage Firms - Flash RetraiteQuébec, viewed January 10, 2014.
- Carrick, Paying more than $10 a trade? You’re doing it wrong - The Globe and Mail (subscription required), viewed March 12, 2014.
- Canadian discount brokerages at-a-glance, MoneySense, viewed November 27, 2016.
- Canada's best and worst online brokers in 2014, The Globe and Mail, viewed November 28, 2016
- The Globe and Mail's 17th annual online broker ranking - The Globe and Mail, December 2015, viewed November 28, 2016
- Canada’s Best Online Brokers 2016, Dan Bortolotti, MoneySense June 2016 issue (subscription required), viewed November 28, 2016
- Investing without borders: The lure of U.S.-dollar accounts - The Globe and Mail, viewed January 19, 2015.
- Canadian Investor Protection Fund (CIPF) -- What Are the Coverage Limits?, viewed Nov. 26, 2016.
Over the years on Financial Wisdom Forum there have been a significant number of discussions about various aspects of discount brokerages. You might find it helpful to review some of these topics (please note that there has been some minor editing of the topic titles).
Specific discount brokerages
- BMO Investorline
- CIBC Investor's Edge
- HSBC Investdirect
- Interactive Brokers
- RBC Direct Investing and RBC Action Direct
- Scotia iTrade (was: Etrade)
- TD Direct Investing (was: TD Waterhouse)
Full service brokerages
For a discussion of full-service brokerages, see
- Financial Wisdom Forum topic:
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 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 TD Direct Investing
- At BMO Investorline
- At CIBC Investor’s Edge
- At RBC Direct Investing
- At Scotia iTRADE
- At National Bank Direct Brokerage
- Investment Industry Regulatory Organization of Canada (IIROC)
- Canadian Money Forum, now there are 5 USD RRSPs