The Differences Between The Canadian and American Stock Markets

2020 was not only a challenging year for banks, but the COVID-19 has given us a new world order with different sock markets depicting uneven recovery traits. Even in the face of these widespread changes, both Cannada and the United States have a lot of differences when concerning the stock market. These differences, no matter how insignificant, can have a considerable impact on investors. Some differences between the Canadian and American stock markets include:

Strength of the U.S Market

You don’t need a professional presentation with a dozen tax folders to tell you that the U.S has a much bigger stock market. But there are exceptions, especially in some specific sectors like basic materials. In the U.S, the five biggest banks also control almost half of all total assets giving investors far more options compared to Canada’s situation. But this may also lead to regular occurrences of bank failures. 

Strength of the Canadian Market

Unlike the U.S market, 85% of top Canadian stocks are in the hands of the country’s biggest five banks, including Royal, Toronto Dominion, Scotiabank, Canadian Imperial Bank of Commerce, and Bank of Montreal. Of course, it limits portfolio quantity selection from Canadian banks, but that’s more for stability. So it’s not surprising to know that since 1980 there have been no banking failures on the Canadian stocks market. 

Speculation

Speculation in the foreign exchange market involves the transaction of currencies and exploiting uncertain conditions for higher gains. There are many speculators available online today with the sole business of purchasing a weak currency with the hope of turning it into a strong buy.

The United States of America is often touted as the leader of the Free World. This is because the country gives an impression of having bold American investors favoring stock picks like technology services startups, etc. This is compared to the deferential stereotype of their Canadian counterparts, who often prefer to acquire government debentures. But the Canadian economy has seen a fair share of some of the most speculative transactions in the Western world.

Penny Stocks

Penny stocks are a huge part of Canada’s forex space compared to the United States. They attract many investors looking to gain high returns quickly. Penny stocks can also include private securities with no active trading market. Public company shares (with a current share price valuation of fewer than five dollars) can best fit the penny stock definition. 

The TSX Venture Exchange, headquartered in Calgary, Canada, places importance on penny stocks. They belong to the TMX group and the Toronto Stock Exchange with over three trillion dollars in market capitalization. The TSXV bills itself as the “junior listings market.” What’s more, any Canadian company can apply to list their stocks even with not-so-convincing net earnings. 

Over the past decade, this has become a hotspot for fraudulent transactions. A typical example is a scandal with Bre X, one of Canada’s largest mining companies. The United States, on the other hand, places very little importance on penny stocks. With tight securities disclosure policies, stock exchanges like NASDAQ and the New York Stock Exchange (NYSE) do not even allow listing applications via the website.

The Bottom Line

These differences between the Canadian and American stock exchanges boil down to the investing strategy differences. Age, number of dependents, and annual salaries are among several essential factors that play a part in investors’ decisions. Some investors focus on more than one strategy; others combine several to give more options. Whatever direction you choose, it pays to observe all the due diligence before putting your money where a broker’s mouth and yours can be.