Yes, trading Contract For Difference (CFD) is considered legal in Canada. Read further to know the top CFD brokers in Canada, how to open CFD account, tax implications, other countries where CFD trading is allowed.
A CFD stands for Contract For Difference, where you do not physically buy or sell a financial instrument, rather you speculate its price trend.
Instead of buying a gold or share of a company, a trader would simply bet if the asset price will go up or down. On making this bet, the gain you’ll earn is the difference between the value of the asset at the time when you bet and the value of asset, when you close the agreement. It is a type of a derivative, where its value is derived from an underlying asset.
For example, you speculate that the price of gold will go upwards today. You enter into the deal when the gold value is at CAD $70. The market happens and the gold goes up to CAD $75 and you decide that you should close the deal, you can close the deal with a CAD $5 profit.
Yes, trading in Contract for Difference is considered legal in Canada. The happenings are monitored strictly by the Investment Industry Regulatory Organization of Canada (IIROC), which is in turn under the Financial Institutions Supervisory Committee (FISC).
Just like how you trade in shares and bonds, you can open an account with a CFD broker and start trading.
Some of the well-known CFD brokers are:
Mostly CFD is traded on a short-term basis. The profits reaped are considered as business income and is 100% taxable. The advantage is that, you can offset any losses against profits or any other income.
By chance, if a CFD has been held for a long time, say more than a year, it is considered as a capital gain and 50% of the gain is discounted.
Although the US bans CFD trading, many other countries such as Canada, Australian, New Zealand, UK, Singapore, Germany etc., does not legally restrict it.
Although trading in CFD is legitimate in Canada, it is one of the riskiest instruments given leverage ratio and lack of ownership.
CFD trading is not a child’s play. It is advisable that those who are experts in market analysis and have time and adequate knowledge to track the trends might enter into such contracts.
Beware of market volatility! Be extra cautious while investing in any of the risky asset classes! Whether you are putting money in stock investments, crypto or CFD trading in Canada or any other country, do thorough research.