One of the most frequent questions I receive is about the best choice of online brokers for trading cannabis stocks. Most of the sector falls into two categories: U.S. OTC stocks, many of which trade below $1, and Canadian stocks. Depending upon the trader’s area of focus, the best choice may be different. Most of the brokers are similar when it comes to the domestic trades, but there are some big differences in how they treat foreign trades. With this in mind, I contacted the six major online brokers to find out how much they charge to execute cannabis stock transactions in the U.S. or in foreign markets.
Before I go on, it’s important to note that U.S. investors have access to many Canadian or Australian stocks without having to buy them in their own markets, which can be more expensive with respect to transaction fees. Some stocks are actually listed dually, while others have a U.S. ticker even though they aren’t officially listed. These listings are known as “unsponsored ADRS” or “convenience tickers” and enable the broker to execute the trade in U.S. dollars even though the trade takes place on a foreign exchange. An example of this is Cronos Group, which trades on the TSX Venture with the symbol MJN and has an unofficial U.S. ticker of PRMCF:
This is in contrast to Aurora Cannabis, which trades on the TSX Venture with the symbol ACB and on the OTCQX as ACBFF:
I reached out to six online brokers and received responses from all but E-Trade and TD Ameritrade. For these, I have evaluated only their websites.
Charles Schwab charges $4.95 per trade for U.S. stocks or U.S. listings for Canadian or Australian stocks, but for non-U.S. stocks one can open a global account. For Canadian stocks, the online fee is C$14 and A$32 for Australian stocks. Additionally, there is a 1% foreign currency conversion fee (reduced for transactions in excess of $100,000).
E*Trade charges $6.95 per trade (reduced to $4.95 if there are more than 30 trades in a quarter). From the company’s website, it appears that there is now way to trade non-U.S. stocks.
Fidelity, like Schwab, charges $4.95 per trade. It allows online trading in Canadian and Australian securities, but the commission is C$19 in Canada and A$32 in Australia. Fidelity also charges a 1% foreign currency conversion fee.
Interactive Brokers charges a commission of $0.005 per share (or $.01 in Canada) with a $1.00 minimum, but it caps the commission at 0.5% of the value of the trade. For those trading high-priced securities, this may prove to be the best choice. For example, 800 shares of Canopy Growth (TWMJF) would cost just $4 in commission. Australian stocks cost 0.08% of the transaction value, with a minimum of $6.00. Where IB excels is for those who want to trade Canadian stocks directly, as the trades can be done online at a much lower price than at competitors.
Scottrade, which is in the process of being acquired by TD Ameritrade, offers a $6.95 online commission, but for stocks less than $1 per share, it tacks on a 0.5% fee. Given that many cannabis stocks fall into this category, the commission charged by Scottrade could be substantially higher than competitors. For some Canadian stocks that don’t have a U.S listing (either official or unofficial), it requires that trades be called in, which boosts the transaction price to $32. The company doesn’t permit trades in Australian stocks.
TD Ameritrade charges $6.95 for online trades and appears to be offering commission-free trades for the first 60 days an account is opened with more than $3000. Like E*Trade, the website makes no mention of the ability to trade stocks outside the U.S.
When it comes to picking a broker, it probably doesn’t matter too much unless one is looking at doing trades in Canadian or Australian securities that don’t have U.S. listings. In this case, Interactive Brokers may offer the best deal. Among the other five brokers, some do not offer access to non-U.S. listings.
For U.S. stocks, most brokers charge a flat fee of $4.95-6.95 per trade, though Scottrade penalizes stocks under $1 with its 0.5% surcharge. Interactive Brokers can be cheaper for higher price stocks but a lot more expensive for shares that trade at lower prices. Two extreme examples:
- $1,000 into a stock that trades at $5 (200 shares, so just $1 commission)
- $5000 into a stock that trades at $0.0010 (5 million shares, which would result in a commission of $25 based on 0.5% of the transaction value).
Larger trades in higher-priced stocks will push the commission at Interactive Brokers above those of its competitors: $10,000 into that $5 stock will cost $10.00 (2000 shares at $0.005 per share). The sweet spot for Interactive Brokers is a few shares of a high-priced stock or a small dollar amount of a low cost stock, which positions it very well for most cannabis stock traders. It could be worthwhile to have two accounts, including one with another online broker if one is executing trades of more than $1000 on very low-priced stocks or is trading larger amounts in general.
I have discussed the best brokers from the perspective of commissions after conducting an independent review, but the levels of service may vary from broker to broker. Additionally, there may be some advantages to being able to trade Canadian or Australian stocks in their home countries, as the liquidity tends to be better. For a long-term investor, this is less relevant, but active traders may want to factor this in. The bottom-line is that Interactive Brokers may be the best choice for cannabis stock traders, while Scottrade appears to be the most expensive.
