Forex Trading in Canada - Is it legal? Do I Pay Taxes?

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Forex trading is completely legal in Canada. Here, the forex trading industry is regulated by the Investment Industry Regulatory Organization of Canada (IIROC) on a national level. In addition, each region in the country has its own regulator.

If you’re in Canada and you want to start trading forex, you might’ve wondered whether forex trading is legal in Canada. If it is, you’ve probably also wondered whether you’ll be liable for taxes on the returns you generate through forex trading.

Fortunately, we’re here to help. In this post, we’ll look at these questions in more detail, so you’ll learn whether forex trading is legal and what taxes you’ll be liable for. More importantly, we’ll show you how you can get started with forex trading in Canada.

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What is Forex Trading in Canada?

Before looking at these questions in more detail, let’s first recap what forex trading is. At its simplest, forex trading is when you exchange one currency for another in the forex market with the hopes of making a profit. Now, let’s look at the concept a bit closer by looking at the EUR/USD currency pair as an example.

In this currency pair, the first listed currency, or the EUR is the base currency. The second listed currency or the USD is the quote currency. In forex trading, the pricing of currency pairs compares the value of one currency with the other.

Specifically, the price indicates how much of the quote currency is needed to buy one unit of the base currency. For example, if the price for the EUR/USD currency pair is given as 1.15, it means that you’ll be able to buy one EUR for $1.15.

But pricing doesn’t stop there, though. When trading a specific currency pair, you’ll see two prices. The first is the BID price or the price at which the broker is willing to buy the currency from a trader. The second, the ASK price, is the price at which the broker is willing to sell the currency to a trader.

There’s a difference between these prices we call the spread. Depending on the specific currency pair, this spread can be fixed or floating, but the spread always goes to the broker as its income. To learn more about forex trading, you can also watch a video we’ve published that goes into it in more detail.

Is Forex Trading Legal in Canada?

Is Forex legit?

The simple answer to this question is that forex trading is completely legal in Canada. Here, the forex trading industry is regulated by the Investment Industry Regulatory Organization of Canada (IIROC) on a national level. In addition, each region in the country has its own regulator.

Considering the above, it’s crucial that you choose a broker that’s licensed with IIROC as these brokers fall under the oversight of IIROC which, in turn, protects you and your money. Keep in mind, however, that, in some cases, a specific broker might not be licensed by IIROC but could be licensed by a specific region.

You might be interested in reading about the best funded trader programs in Canada in the TU article.

How Much Money Do I Need to Start in Forex?

Many brokers have minimum deposit requirements of anything from $10 to $200 with the average being about $10. In addition, many brokers give you the ability to open an account without depositing any funds which means you can start trading forex with as little as $1.

But now the question is: Can you start trading forex with such a small account? While you can, the question should rather be whether it’s a good idea to start trading with a small amount like $10. Generally, it’s not. The problem is that, when you start trading with a small amount, you’ll need to use a lot of leverage when trading.

While leverage can help you to amplify your profits, it’s also capable of amplifying your losses. This is simply because, while leverage allows you to trade large amounts of money without having a large account balance, your losses are calculated on the pre-leverage amounts you trade. For example, when you enter a $1,000 trade with a leverage of 100:1, the losses you make are calculated on the $1,000 trade size and not the capital you invest.

Although it’s not a good idea to start with amounts as low as $10, you should also be careful not to start trading with too much money, especially when you’re a new trader. This is because trading with too much money when you’re still learning about forex trading and a trading platform will expose you to too much risk and you could lose a lot of your money.

For this reason, generally, the recommended amount to start forex trading is between $500 and $1,000.

Canadian Forex Brokers Minimum Deposit Amount Comparison

Interactive Brokers Oanda AvaTrade

Minimum Deposit

$0

$0

$100

How to Begin to Trade Forex in Canada? A Step-by-Step Guide

Now that you’ve seen that forex trading is legal in Canada and how much you’ll need to start trading, let’s look at the process you’ll need to follow to start trading forex.

Step 1. Choose A Forex Broker

The first thing you’ll need to do when you start trading forex in Canada is finding the right broker. When searching for the right broker, you’ll typically consider whether the broker offers everything for you to meet your goals. As a result, you’ll typically look at the currency pairs the broker offers, how easy its trading platform is to use, and its minimum deposit requirements.

It’s also worth it to consider the broker’s fees and commissions. Here, you’ll want to ensure that you get the most value for the commissions and fees you’re paying. Another aspect you’ll want to look at is whether the specific broker offers passive income options. This will allow you to earn returns on your invested capital without actively trading.

As mentioned earlier, most importantly, however, is to ensure that the broker is properly regulated in Canada. This means that the broker falls under the oversight of the Canadian authorities and gives you some protection against the loss of your funds.

Step 2. Start with Demo

Most, if not all, brokers offer demo accounts, so, once you’ve decided on the right broker, it’s advisable to start with a demo account. This offers several benefits. For one, it allows you to learn more about forex trading. As such, you can learn how forex trading works and test out different strategies. It also gives you the opportunity to test out the trading platform and its features without risking any of your own funds.

Step 3. Test Your Strategy

Once you’ve practiced trading using a demo account and before you start trading with actual funds, you’ll need to decide on the right trading strategy depending on your specific skills, goals, and the amount of free time you have. Here, there are several things you’ll need to consider.

The first thing is your level of forex trading skills and experience. Generally, you’ll want to choose a simpler trading strategy the less experienced you are. Such a strategy will, typically, not rely on large leverage or executing a large number of trades. For this reason, the best strategies for beginners are usually low-activity trend trading strategies.

But forex trading is about more than executing trades and making profits and also encompasses limiting what you lose. Therefore, a vital aspect of any trading strategy is effective risk management which you’ll need to practice properly before you start to trade.

Step 4. Learn, Learn, Learn

When you start trading Forex, your first goal will be to not lose too much of your money. In other words, you’ll want to limit your risk as far as possible. Once you’re able to do this, you’ll need to focus on learning as much as you can about forex trading.

As such, you’ll need to learn and practice new trading strategies, learn better risk management, and test out other earning options. Ultimately, this is the only way in which you achieve success in forex trading.

Express Forex course for beginners

Best Canadian Forex Broker For Beginners

As mentioned earlier, the first thing you’ll need to do when you want to start trading forex is find the right forex broker for your specific goals and requirements. The problem is that there are so many brokers available that it’s challenging to find the right one.

Fortunately, we’re here to help and we’ll now look at some of the best Canadian forex brokers. you can choose from when you want to start trading forex. Considering that one of the most important aspects is that the broker should be regulated, we’ll look at IIROC-regulated brokers in Canada.

Top 8 best trading apps in Canada

Here, some of the best choices include:

AvaTrade

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AvaTrade gives you access to a wide range of trading instruments including the major currency pairs and CFDs on commodities, stocks, indices, bonds, and more. It also gives you access to a range of intuitive and easy-to-use trading platforms including MetaTrader 4 and its dedicated options trading platform, AvaOptions. A major benefit of the broker is that it gives you the ability to duplicate the trades of expert brokers through its DupliTrade platform and, in the process, earn a passive income. The broker offers competitive pricing and has a minimum deposit requirement of $100.

Interactive Brokers

Since its inception over 43 years ago, Interactive Brokers has grown to become one of the most popular brokers, not only in Canada but around the world. As is the case with the other brokers mentioned here, Interactive Brokers is properly registered, and a major benefit of the platform is that it doesn’t have any minimum deposit requirements. In addition, it features its range of proprietary trading platforms and a vast library of educational resources you can use to learn more about the financial markets.

Forex.com

Forex.com is one of the most popular forex brokers in Canada and with good reason. It’s properly regulated and it gives you access to over 300 markets including over 80 currency pairs. The platform offers a range of trading platforms including MT4, mobile apps, and advanced charting tools offered by TradingView. Forex.com also offers a range of trading accounts to meet your unique requirements, a minimum deposit requirement of only $50 and highly competitive spreads.

Do I Pay Forex Taxes in Canada?

You’ll need to pay taxes on the income or returns you generate as a result of forex trading. The type of tax you’ll have to pay depends on your specific circumstances. Here, there are two different types of tax you could be liable for.

The first type is capital gains tax and you’ll typically be liable for it when you trade the forex markets in a non-professional capacity or as an investor. In other words, you’ll be liable for capital gains tax if forex trading isn’t your profession or your business. The main benefit of capital gains tax is that you’ll only pay taxes at 50% of your marginal tax rate.

Conversely, you’ll need to pay the second type of tax, income tax, when you make a living from forex trading or if it’s your business. This will, for instance, be the case where you make a living as a day trader. Here, you’ll need to report your earnings as business income. Compared to capital gains tax, you’ll pay taxes on these earnings at your full marginal rate.

How Much Can I Earn?

How Much Can You Make Trading in Forex

It’s difficult to say how much you’ll be able to earn because your earnings, ultimately, depend on your specific trading and risk management strategies and how much money you trade with.

For example, when you trade with an aggressive strategy and a lot of leverage, you can earn $100 a day with a deposit of only $200. Here, the amount you’ll be able to earn is directly correlated to your deposit size. So, the more you deposit, the more you’ll be able to earn. For instance, if you deposit $10,000, you’ll be able to earn $5000 a day.

It’s important to remember, however, that these guidelines are based on ideal conditions coupled with extremely risky trading strategies. In other words, the probability that you’ll be able to achieve these returns is highly unlikely. In fact, the possibility that you’ll lose most of your capital is more likely.

Considering the above, let’s look at a more conservative strategy. Here, if you use such a conservative strategy when trading Forex, you manage your risk properly, and use only moderate leverage, you’ll be able to achieve a return of about 12% on your capital with an account balance of $500. Also, keep in mind this projected return is based on you using 100% of this deposit annually.

FAQs

Apart from the information above, we’ve also compiled a list of frequently asked questions people often have when it comes to forex trading in Canada.

Can I make money trading forex in Canada?

Yes, you can. However, how much you’re able to make depends on your specific strategy, how you manage your risk, and how much funds you’re willing to trade with.

How do I open a trading account?

The first step is to find a forex broker that meets your specific needs and goals. When you do, you’ll be able to open a trading account with the broker, which is usually a quick and easy process.

Should the broker I choose by licensed?

It’s always better to use a properly licensed broker in order to enjoy the benefits and protection that come with regulation.

If I deposit funds with a broker, will my money be safe?

As long as you choose a licensed broker, you’ll, generally, not have anything to worry about as licensed brokers fall under the oversight of IIROC which aims to protect investors.

Team that worked on the article

Mikhail Vnuchkov
Author at Traders Union

Mikhail Vnuchkov joined Traders Union as an author in 2020. He began his professional career as a journalist-observer at a small online financial publication, where he covered global economic events and discussed their impact on the segment of financial investment, including investor income. With five years of experience in finance, Mikhail joined Traders Union team, where he is in charge of forming the pool of latest news for traders, who trade stocks, cryptocurrencies, Forex instruments and fixed income.

The area of responsibility of Mikhail includes covering the news of currency and stock markets, fact checking, updating and editing the content published on the Traders Union website. He successfully analyzes complex financial issues and explains their meaning in simple and understandable language for ordinary people. Mikhail generates content that provides full contact with the readers.

Mikhail’s motto: Learn something new and share your experience – never stop!

Dr. BJ Johnson
Dr. BJ Johnson
Developmental English Editor

Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.

The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.

Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.

Mirjan Hipolito
Cryptocurrency and stock expert

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.