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How Do Canadian Discount Brokers Compare With Robinhood?

Guest Post | April 12, 2021

online trading setup - How Do Canadian Discount Brokers Compare With Robinhood?

Robinhood is a US-based digital stockbroker and trading app that experienced exponential growth over the past few years. The company is on a mission to democratize investing by making the stock market accessible to all. To help with its purpose, Robinhood introduced zero-commission stock trades way back in 2013.

Unfortunately for Canadian investors looking to build their savings, Robinhood is not available to them. There is no indication that Robinhood along with rivals like eToro will make their way up north anytime soon.

In the meantime, the battle of Canadian brokers pits legacy and old-school institutions against newer-age online platforms. For example, this BMO Investorline vs Questrade guide compares and contrasts BMO’s brokerage service that was launched in 1988 with Questrade’s service that was launched just in time for the new century.

Why Isn’t Robinhood Available In Canada?

Robinhood Co-Founder and Co-CEO Baiju Bhatt said in a Reddit AMA in 2019 the company paused in 2016 all plans related to market expansion. Robinhood cited the surprising Brexit outcome and corresponding market uncertainty in its decision to focus exclusively on the US market.

By July 2020, Robinhood confirmed all international expansion plans are no longer part of the company's thought process. Expectations for Robinhood to become one of the online stock brokers available to Canadians has been shot down, possibly for good.

Robinhood said: “We’ve come to recognize that our efforts are currently best spent on strengthening our core business in the US and making further investments in our foundational systems.”

Chances are more likely that eToro will bring its online stockbroker platform to Canada. The Israel-based rival to Robinhood already has a presence in the United Kingdom, Europe, Australia, and elsewhere. The company recently closed a deal to list itself on the US stock market and will have US$800 million in cash to support future growth initiatives.

In the meantime, the list of stockbrokers in Canada remains mostly the same in 2021 as it was 20 years ago. The list of some of the more notable online Canadian brokers including BMO Investorline, Questrade, Qtrade, Scotia iTrade, TD Direct Investing, WealthSimple, among others.

Do Any Stock Brokers In Canada Offer Free Trading?

Robinhood gained fame by letting all clients transact on its online stock brokerage platform for free. The challenge it presented to legacy brokers was immense and US banks scrambled to introduce free stock platforms of their own.

Only one of the online Canadian stock brokers offers free trading -- sort of. Wealthsimple is a zero-fee robo-advisor firm that only charges clients an annual fee equal to 0.4% or 0.5% of their total assets under management.

Users with up to $100,000 in assets pay a fee of 0.5% and those with more money pay a reduced fee of 0.5%. The math behind the fee structure could prove to be extremely beneficial or very disadvantages for users depending on their individual circumstances.

A Canadian investor that just opened an online brokerage account with $50,000 will pay roughly $250 a year in fees. The tradeoff is the investor is paying for an automated service that includes features like automatic rebalancing, dividend reinvestment, and tax loss harvesting.

However, knowledgeable and investment savvy Canadian investors looking for a do-it-yourself experience can set up a diversified portfolio with 12 stocks at roughly half the cost of one year’s worth of Wealthsimple fees. Wealthsimple charges a premium forex fee for all trades denominated in US dollars so it may or may not be advantageous compared to rivals like BMO Investorline and those from big banks that typically charge a flat fee of nearly $10 a trade.

Wealthsimple trading - How Do Canadian Discount Brokers Compare With Robinhood?

Source: Wealthsimple

Some Canadian Brokers Offer Free ETF Trading

A few other Canadian online brokers offer free access to buy and sell exchange-traded funds. Some of the brokers that offer free ETF trading include Qtrade, Wealthsimple, National Bank Direct Brokerages, among others.

Other brokers like BMO Investorline are stuck in the dinosaur era where buying and selling ETFs still cost close to $10.

Do Canadian Online Brokers Offer Fractional Share Ownership?

Another key feature that makes Robinhood stand out as one of the more popular online stock brokers is a feature that lets investors buy fractional shares. Investors can buy as little as one one-millionth of a share and upwards.

This gives investors of all shapes and sizes the ability to own what the big shots on Wall Street own. Investors can buy one-tenth of one share of Amazon's stock for around US $330.

Canadians hoping to take advantage of similar features on one of their online stock brokers are mostly out of luck. A Questrade representative on Reddit confirmed it has “no plans” for fractional trading at the moment.

Interactive Brokers is a US-based online stock broker available to Canadians and it started offering fractional share ownerships to its Canadian users in 2019. Aside from Interactive Brokers, Canadians hoping to do what Robinhood clients have been doing for some time are out of luck.

Conclusion: What Are The Closest Canadian Alternatives To Robinhood?

No single Canadian online stock broker offers an identical experience to Robinhood. Wealthsimple would be considered among the closest given its zero-commission fee structure although for many this could prove to be more expensive given its value-added fees.

Canadian brokers like Questrade and Qtrade might be viewed by some as a close alternative. All three embrace the digital revolution and target younger millennials looking to invest their small but growing fortune.

On the other end of the spectrum, old Canadian online brokers like BMO Investorline, RBC Direct Investing, and TD Direct Investing have the least in common with Robinhood that strives to make investing cheap and accessible to all.

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