Best IIROC-regulated brokers

When choosing a broker, one of the most important things to consider is whether, or more accurately where, they are regulated. Any involvement with an unregulated broker will likely end up with you never seeing your funds again. If you open an account with a broker that operates under licence from the Investment Industry Regulatory Organization of Canada (IIROC), you are placing funds with a regulated broker. IIROC is a non-profit, national self-regulatory organisation. IIROC oversees all investment dealers and trading activity on debt and equity markets in Canada.

Its mandate covers overseeing Canadian stock market activity, investigating and disciplining firms or advisors for misconduct, and setting high regulatory and investment industry standards. Founded in 2008 through the merger of the Investment Dealers Association of Canada (IDA) and Market Regulation Services Inc. (RS), the organisation has built an internationally recognised reputation. In short, it is responsible for ensuring that financial market activities are carried out in a strong and fair manner.

#1 AvaTrade

Canadian clients of AvaTrade hold accounts with Friedberg Direct — a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF).

Within specified limits, customer accounts receive protection from the Canadian Investor Protection Fund. AvaTrade’s cutting-edge technology ensures that all your personal details are protected by SSL encryption and industry-leading protocols.

#2 Forex.com

GAIN Capital-FOREX.com Canada Ltd was admitted to membership in the Investment Industry Regulatory Organization of Canada, effective May 10, 2012.

The head office is located at Bedminster One 135 US Hwy 202/206, Suite 11, Bedminster, New Jersey 07921. Telephone: 908-731-0700.

#3 CMC Capital Markets

CMC Markets Canada Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. CFDs are distributed in Canada by CMC Markets Canada Inc., acting as principal.

Address: 2915-100 Adelaide St W, Toronto, ON M5H 1S3, Canada.

#4 TD Securities

TD Securities Inc. is regulated by IIROC and is a member of FINRA.

Address: PO Box 1, TD Bank Tower, 66 Wellington Street West, Toronto, Ontario, M5K 1A2.

#5 Interactive Brokers Canada Inc.

Interactive Brokers Canada Inc. is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund.

Registered Office: 1800 McGill College Avenue, Suite 2106, Montreal, Quebec, H3A 3J6, Canada.

#6 RBC Direct Investing Inc.

RBC Direct Investing Inc. is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund.

Address: RBC Direct Investing Inc. Royal Bank Plaza, 200 Bay Street, North Tower, PO Box 75, Toronto, Ontario M5J 2Z5.

Why do brokers apply to be regulated?

Forex trading is well established in Canada. Brokerage firms cater to clients’ needs by offering great features such as competitive pricing terms, user-friendly platforms, and high-grade research. One other way that they can compete is in terms of trustworthiness.

If you’re placing funds with a broker, you want some comfort that you’ll be able to get your money back at some point in the future. The fact that IIROC regulates brokers and offers official recognition of compliant firms can help the more trustworthy brokers to stand out.

There is another benefit to being regulated. Most brokers make their money on trading commissions. The greater the number of traders and trades on their platform, the better it is for business. IIROC regulations designed to protect end users are also suitable for brokers.

IIROC’s role is to regulate companies and individuals operating in the financial services sector and to enforce laws to protect traders and investors.

One of the neat features of IIROC is that it carries out a lot of real-time checks. This means that faults in the system are identified earlier. This cuts back on fraudsters’ potential gains and discourages them from initiating their scams.

Other features of IIROC’s activities include the following:

• IIROC authorises, registers, and monitors institutions and individuals who conduct financial services in Canada.
• Regulated entities have to submit reports to IIROC to demonstrate their compliance with the laws, regulations and rules that apply. IIROC will update and share details of its register.
• IIROC can sanction firms or individuals that breach the rules.
• IIROC sets minimum capital requirements to ensure that broker firms have enough capital to operate. This reduces the risk of firms failing.
• If a firm fails, then client money is protected due to regulations requiring client funds to be segregated from broker funds.
• In the event of broker insolvency, retail clients would have their share of segregated money returned, minus the costs of organising redistribution of funds.
• Any shortfall of funds of up to $1m may be compensated by the Canadian Investor Protection Fund (CIPF).
• Depending on where they live, if a firm does fail, investor funds can be protected by the CIPF.
• IIROC screens and then keeps a register of firms that are regulated.
• IIROC can provide recourse to investors who are unhappy with the way that any IIROC-regulated broker treated them.

The above list includes some of the duties carried out by IIROC, but there are many more to consider. The organisation is not shirking from work required to meet its aim of ensuring that the Canadian financial markets operate in an orderly and efficient manner.

Choosing an IIROC-regulated broker is, therefore, a significant first step. Due to historical anomalies, Canadian forex traders can opt to use an offshore-regulated broker instead. This is a debate for another day though.

Everyone can agree that using an unregulated broker is a massive risk and is to be discouraged. The harsh reality is that if you’re using an unregulated broker, there is no cover or protection for you.

What does being IIROC-regulated mean?

There are many hoops to jump through for any firm that wants to gain and keep an IIROC licence. The application process itself takes months and involves a lot of form-filling. The onus is on the broker to demonstrate that it has a compliant business model.

Applicant firms must ensure that their staff are not on the IIROC blacklist and that they have the skills and experience required to run the business.

After gaining the licence, there is more work and expense. Licensed firms are required to satisfy IIROC reporting obligations and keep up to date with new rule changes.

Any firm wanting to be IIROC-regulated needs to be prepared to invest heavily in the application process and ongoing reporting. If costs are to be recouped over the long term, then the broker needs to have a good chance of success, and this means that it needs to have lots of features that will attract clients.

It’s a win-win situation. The process means that brokers need to be both safer and better. All things considered, it appears surprising that some retail investors still lose money by using unregulated and fraudulent brokers.

There is still one challenge left. Given that unregulated brokers are not an option, there is always the question of considering the pool of brokers that are IIROC-regulated. This requires getting to know more about them and how they might fit your trading type.

One way is to open an account with an IIROC-regulated broker. This is not only safe, but it will also help you learn more about trading and what each broker offers. There are no strings attached, so there’s no harm in shopping around until you find the best fit.

Final thoughts

You don’t need to use an IIROC-regulated broker to trade in Canada, but it certainly helps.

When you consider how much effort IIROC-regulated firms put into gaining their licence, it’s hard to understand the appeal of using an unregulated broker. Unregulated brokers do, however, still catch out some investors by making outlandish promises.

Therefore, some basic research can help to keep you safe, and all of the above brokers are worthy of inclusion on a shortlist of brokers to consider.

Considering the features of other brokers can help you find one that is a good fit for you.

The final step is building up trading skills. If a broker is regulated and high quality, you still need to get your trading decisions right. One of the best ways to do this is to trade using a Demo account.

Demo accounts allow you to trade virtual funds using live market prices. As all of the above brokers offer free Demo accounts, this is an excellent reason to try out some of them.

Demo accounts with the above brokers are no strings attached and are free to open and use, so it’s worth trying out more than one. They allow you to build trading skills and get hands-on experience of the different brokers’ pros and cons.