Online trading provides more advantages than traditional investment methods because it allows traders more control of their time, energy, and decisions. Also, online trading costs less and offers additional trading tools and resources.
Online trading is booming in Canada, the industry reached $4.23 trillion in market capitalization within this country, as listed in January 2024 by TSX and TSXV,
Investing in Canada (especially inside RRSPs and TFSAs) have potential for significant cost savings. In RRSP for example, the tax is deducted from your taxable income for that year, so you pay less income tax immediately. Also, you can withdraw earlier in RRSP, unlike other retirement accounts.
Meanwhile, your investment grows tax free inside TFSA. The tax-free compounding can accumulate to huge savings over time. TFSA account has no barrier to withdrawals and allows you to invest in a wide range of assets, stocks, bonds, mutual funds, and guaranteed investment certificates/GICs.
This article explores benefits in detail to provide you with a solid foundation for managing your investments in Canadian brokers.
Convenience and Flexibility
Online trading, unlike traditional investing, eliminates physical visits to brokers and offices in executing a transaction. It is more convenient because you can trade anytime and anywhere using your mobile phones or laptops, as long as you are connected to the internet.
The flexibility of online trading motivates anyone to start trading. Online trading allows busy individuals, even with unpredictable work hours, to trade either to supplement their income or to manage their finances on their terms. With online trading, you don’t need to schedule appointments.
Control and Choice
Multiple trade options is one of the benefits of online trading (stocks, ETFs, options, bonds, mutual funds, GICs, etc.). This allows you to strategically trade based on your strengths. Since trading is done online, you can easily access listed Canadian Securities Exchange (CSE) stocks and TSX Venture Exchange (TSXV) alongside companies on the Toronto Stock Exchange (TSX). If you are in Canada, this enables you to maximize the benefits from regulations and growth of the domestic market.
Whether you are a long-term investor or a day trader, online platforms often have tools and resources. Online trading lets you diversify your trading portfolio based on your skills, experience, and risk tolerance. You have access to market research, analysis tools, and real-time data to more in-depth decision-making and portfolio management of your investment account.
Online trading can provide financial independence even for traders with small capital, which is harder to do in traditional trading like mutual funds through advisors or full-service brokers. Also, online trading is self directed. You can customize your dashboard, set alerts, and leverage resources that align with your investing style and goals.
Taking control of your investments is an empowering experience. It fosters financial understanding and allows you to shape your future on your own terms.
Lower Costs
Management expense ratio of ETFs trading online with S&P/TSX Composite averages around 0.05% – 0.2%, as stated by Horizons ETFs. This Canadian index often has the lowest MERs. Meanwhile, ETFs focusing on specific sectors like in technology or financials might be higher, ranging from 0.3% – 0.6%.
On the other hand, mutual funds of traditional advisors often exceed 1.5% – 2.5%, sometimes even higher for actively managed equity funds. On specialty funds focusing on niche sectors or international markets can have even higher MERs. The MERs are higher because the MER covers the commissions paid to financial advisors and investment managers. Many traditional mutual funds are also managed actively. The mutual funds often have expenses for marketing and distribution (sometimes called 12b-1 fees). This is not the case in online trading.
You can even find online trading brokers in Canada offering commission-free trading on stocks and ETFs, like Wealthsimple. Also, Questrade, a popular brokerage in Canada, only charges 1 cent per share with a minimum commission fee of $4.95. Buying ETFs in Questrade is commission-free and selling only charges 1 cent per share with $4.95-$9.95 fee.
IBKR is also know for its extremely low fees help you save money because it becomes significant when it accumulates in the long term. You can maximize the amount of money working for you because the fees are relatively lower every time you buy and sell.
Access to Information and Analysis
Another advantage of online trading is that online trading platforms often provide educational resources from beginners to experienced traders for market analysis. Online trading platforms offer online courses, one of which is the Trader’s Academy from Interactive Brokers. The resource material teaches comprehensive concepts, fundamentals, and tools walkthrough guides you can utilize on their platform.
Especially for beginners, online trading platforms will likely teach you the basics of trading on their platform. Some even produce blogs, webinars, and podcasts for traders so you can constantly learn new ideas, techniques, and perspectives to improve your trading skills. This is great because the learning materials are self-paced. You get to learn more about online trading without overwhelming yourself. If you are busy, this also enables you to manage your time.
Top brokers offer research tools and customizable charts to monitor real-time data. This simplifies your trading experience because it allows multitasking more seamless. You can analyze the movement of stocks, ETFs, and other assets with accuracy. The more you understand the tools you are using, you can collect the right data to support your decision-making.
If you have holdings in Canada, reputable online platforms, like BMO, RCBC, and Scotiabank provide insights specific to the Canadian market. You can benefit from staying updated to domestic economic news, sector trends, and analysis of Canadian-list companies. This niche knowledge makes it easier for you to stay informed, where you can use the information you gain in your future trading decisions.
Potential for Higher Returns (Acknowledge Risk)
Among the benefits of online trading is it provides opportunities to potentially earn higher returns compared to traditional savings accounts or GICs. Since you can trade on your computer or mobile phone, you can actively trade whenever and wherever you want with ease. Through active investing and strategic choices, you have more possibilities to grow your wealth more significantly over time.
However, it is crucial to remember that the potential for higher returns have an equivalent potential trading risks as well. The volatility is different across the stock market. You can lose money if the market goes differently than you predicted. Before you take action, it is essential that you understand your risk tolerance, develop a solid investment strategy, learn the fundamentals of online trading, and thoroughly research your prospects.
It is crucial to think in the long term to benefit from the potential higher returns when trading online. Avoid chasing quick gains because it requires more effort, time, and energy. Instead, focus on building a diversified portfolio set for the long term. Historically, the stock market has shown growth over extended periods. If you are patient, you can gain more.
In 2021, Canada stock market return value went up by 23.7%, according to a research made by The Global Economy. Let’s say you invested $1000 in 2015. The value of the stock market was -2.09% from its original value that year, which equates to $979.10 at the end of 2015. In 2016, the return value was -1.96%. At the end of 2016, your investment will be worth $959.59.
If you held onto your investment in 2017, the stock market that year in Canada had a return value of 10.65%. It means the value of your investment was now worth $1061.68. Despite fluctuations along the way, your investment could be worth significantly more today. This illustrates why staying invested through market ups and downs is key to realizing long-term potential of your assets.
Risks are inherent in online trading, but online trading platforms provide tools and resources to manage them. One way you can mitigate the risk is by diversifying your portfolio and always conduct thorough research before making a trade.
Spreading your investments across different assets and sectors through diversification reduces the impact of any single investment’s poor performance. Additionally, the research resources available on platforms online supports your online trading strategy that are based on accurate data, and not based on speculations.
Conclusion
Online trading offers convenience, control, and access to information and data. You can also have more potential for cost savings and higher returns. Take the next step towards your financial goals and build your wealth on your own terms.
Explore our comprehensive guides for Canadian online trading here at Tech Daily. We’ll help you find the platform that fits your investment goals.