FSO NEWS: How to Choose a Brokerage Account: Account Types, Costs and Investor Protection

Key takeaways

A brokerage account is what lets you buy and sell stocks, ETFs and other securities. The right one depends on your goals, how much help you want and what you plan to trade.
Pick the account type first. Canadians often choose between a TFSA, RRSP, FHSA and a non-registered account; Americans between a taxable account and an IRA. Tax rules differ for each.
Compare the full cost, not just commissions: currency conversion, account and transfer fees, margin interest and fund fees all add up.
Check investor protection. Accounts at CIRO member firms in Canada are covered by CIPF, and accounts at SIPC member firms in the US by SIPC, within limits. Neither covers market losses.
Confirm the firm is registered with the CSA National Registration Search in Canada or FINRA BrokerCheck in the US before sending any money.

Every stock trade starts with a brokerage account, yet many people open the first one they see in an ad. The account you choose affects what you pay, which tax shelters you can use, what you can trade and how your assets are protected if the firm fails. This guide walks through the decisions in order, for readers in both Canada and the US, with a checklist you can use to compare firms.

Step 1: Decide how much help you want

Brokerage services fall into three broad groups:

Type	What you get	Best suited to
Self-directed (online or discount brokerage)	You choose and place every trade yourself. In Canada these are often called order-execution-only accounts, and the firm does not assess whether your trades suit you.	Investors and traders who want control and are comfortable doing their own research
Full-service or advisory	An advisor recommends investments, may manage the account and must consider your situation. Fees are usually higher.	People who want ongoing advice and planning
Robo-advisor	An online service builds and rebalances a portfolio, usually of ETFs, based on a questionnaire.	Hands-off investors who want a low-maintenance, diversified portfolio

Most readers who want to pick stocks, build a watchlist and place their own orders will use a self-directed account. Many people combine approaches, for example a robo-advisor for retirement savings and a self-directed account for individual stocks.

Step 2: Choose the account type

The account type decides how your gains, dividends and interest are taxed. Contribution limits and rules change over time, so check the current figures with the Canada Revenue Agency or the IRS.

Country	Account	Key feature
Canada	Non-registered (cash or margin)	No contribution limit. Interest, dividends and capital gains are generally taxable each year.
Canada	TFSA	Investment growth and withdrawals are generally tax-free. Contribution room is limited.
Canada	RRSP	Contributions are generally tax-deductible, and growth is tax-deferred until withdrawal.
Canada	FHSA	For eligible first-time home buyers. Combines a deduction on contributions with tax-free qualifying withdrawals.
US	Individual or joint taxable account	No contribution limit. Dividends and realized gains are generally taxable each year.
US	Traditional IRA	Contributions may be tax-deductible, and growth is tax-deferred until withdrawal.
US	Roth IRA	Contributions are made after tax, and qualified withdrawals are tax-free. Income limits apply.

For Canadian readers, our guides to the TFSA contribution limit and FHSA vs RRSP explain how contribution room works. Many people hold several account types at the same firm, which makes it easier to see everything in one place.

Cash account or margin account?

Inside a non-registered or taxable account you usually choose between a cash account, where you pay in full for everything you buy, and a margin account, which lets you borrow from the broker against your holdings. Margin adds leverage, interest costs and the risk of forced selling. A cash account is the simpler starting point; you can usually apply for margin later. Registered and retirement accounts such as TFSAs, RRSPs and IRAs generally cannot be used to borrow on margin.

Step 3: Compare the full cost

Many brokers now advertise low or zero commissions on stock trades, but commissions are only one cost. Look at the firm's full fee schedule for:

Trading commissions on stocks, ETFs and options, including any per-contract options fees.
Currency conversion. Canadians buying US-listed stocks usually pay a conversion spread on top of the exchange rate, on the way in and again on the way out. Some brokers let you hold US dollars in your account, including in registered accounts, so you do not convert on every trade.
Account fees: annual, inactivity or low-balance fees, and fees on registered accounts.
Transfer-out fees if you later move your account to another firm.
Margin interest rates if you plan to borrow.
Fund fees. ETFs and mutual funds charge an annual expense ratio (called the management expense ratio, or MER, in Canada) inside the fund, whichever broker you use.

Hypothetical example: a Canadian investor converts $10,000 to US dollars to buy a US stock, and the broker's conversion spread is 1.5%. That costs about $150 on the way in, and a similar amount when converting back, before any commission. On a small account that can be more than years of commissions. The rate here is made up for illustration; check your own broker's rate.

Trading costs also include the bid-ask spread, which you pay no matter how low the commission is. The Bid-Ask Spread, Liquidity and Slippage explains how that works.

Step 4: Check investor protection and registration

Investor protection funds step in if a brokerage firm fails and customer assets are missing. They do not protect you from a fall in the value of your investments, bad advice or a company you invested in going bankrupt.

	Canada: CIPF	US: SIPC
Who is covered	Clients of CIRO member firms	Customers of SIPC member broker-dealers
What it covers	Missing cash and securities (and some other property) held by an insolvent member firm	Missing cash and securities held by a failed member firm
Limits for individuals	Generally $1 million for all general accounts combined (such as cash, margin, TFSA and FHSA accounts), plus $1 million for registered retirement accounts, plus $1 million for RESPs	$500,000 per separate capacity (such as individual, joint or IRA), including a $250,000 limit for cash
Not covered	Market losses, unsuitable investments, poor advice, issuer default and crypto assets	Market losses, bad advice and certain investments such as commodity futures

Before opening an account, confirm the firm is registered and look for any disciplinary history:

Canada: search the firm and any advisor in the Canadian Securities Administrators' National Registration Search, and check that the firm is a CIRO member covered by CIPF.
US: look the firm up on FINRA BrokerCheck and confirm SIPC membership in SIPC's member database.

An "investment platform" that is not registered, promises unusually high returns or asks you to send money by wire, gift card or crypto is a red flag.

Step 5: Make sure the platform fits how you invest

Once cost and safety check out, compare the tools you will use every day:

Order types: limit, stop and trailing stop orders, and whether extended-hours trading is offered. Stock Order Types Explained covers what each order does.
Markets and products: Canadian and US stocks, ETFs, options, bonds and fractional shares, if you want them.
Charts, screeners and alerts good enough to support your watchlist.
Research and data: earnings dates, financial statements and news.
Usability: a mobile app and desktop platform you find clear, plus reliable customer service you can reach by phone.
Reporting: clear statements and tax slips, and easy export of your trade history for your records.

Opening the account

Expect an online application that asks for identification, your Social Insurance Number or Social Security Number for tax reporting, your employment and financial situation, and your investment knowledge and goals. Firms are required to collect this information. Canadians who will hold US securities may also be asked to complete IRS Form W-8BEN, which certifies non-US status for withholding tax purposes. Funding is usually by electronic transfer, and you can often move an existing account from another firm without selling the investments in it.

A checklist for comparing brokers

Does it offer the account types I need (TFSA, RRSP, FHSA, IRA, taxable)?
What will my typical year cost, including commissions, currency conversion and account fees?
Is it a CIRO member covered by CIPF, or a SIPC member, and is it registered?
Does it support the products and order types I plan to use?
Are the platform, charts and alerts good enough for my routine?
What does it cost to transfer out if I change my mind?

Common questions

Can I have accounts at more than one brokerage?

Yes. Many people do, for example to use one firm's platform for trading and another for long-term holdings. Keep track of registered-account contribution room across all firms, since the limits apply to you, not to each account.

Is money in a brokerage account insured like a bank deposit?

Not in the same way. CIPF and SIPC protect against missing assets when a member firm fails, within limits. They do not guarantee the value of your investments, which can go down.

Can Canadians buy US stocks?

Yes. Most Canadian brokerages offer US-listed stocks and ETFs. Compare how each handles currency conversion and whether it offers US-dollar accounts.

Sources

This article is for general information only and is not financial, tax or legal advice. All fees and amounts in the examples are hypothetical. Account rules, fees and protection limits can change, so check the firm's documents and official sources before opening an account. Investing involves risk, including the possible loss of principal.

This article is for general information only and is not financial, tax, legal or insurance advice. Check the official sources linked in the article and speak with a qualified professional about your own situation.