How to Trade Canadian Stocks & Warrants
 

Hello, this is Dudley Pierce Baker and I welcome you to my website and specifically to this article which will give you the basics of 'how to trade', the Canadian stocks and warrants including where to find the symbols and placing your orders online.

You like most investors have probably become accustomed to trading online and refuse to trade otherwise. It’s a fact that most of the common shares and warrants of the companies involved in the natural resource sector are Canadian companies. The opportunities are awesome with Canadian mining shares and warrants but most U.S. investors have not had the resources and knowledge as to how to participate in these exciting investments, until now. Many investors in the United States (and even some analysts) think this is difficult, but it is not. As a U.S. investor, I have traded the Canadian shares for over 14 years with no problem. So, listen up and I will tell you how and in a few minutes you will be an expert.

Let's first remember that for a Canadian company, the listing requirements, etc. are with the Canadian authorities and the primary market for the shares/warrants is usually the TSX (Toronto Stock Exchange).

In the United States, you may hear of different markets, i.e., NYSE, Amex, OTC, pink sheets, grey market, etc. Yes, some of the larger companies may trade on the NYSE or the Amex but most are not and this is the mystery for many investors.

Regardless, of the market, all you want is a symbol, right? In nearly all cases, the symbol will be a 5 alpha symbol ending in F, for foreign. So, let's look at some sources of this information. 

Sources for Quotes:

Your brokerage firm:  you will probably find the quotes right under
                              your nose.  Look for the 'symbol search' on
                              your broker's website.

Pinksheets.com      : Virtually all of the symbols for the Canadian
                              shares and warrants will be listed here. I
                              have placed a hyperlink to their website for
                              your convenience.  Just enter the company
                              name and you should see the symbol.

Nasdaq.com           : The Nasdaq also has a symbol search where
                              you may find symbols for many of the
                              Canadian shares but not the warrants.

Entering your Order:

Now that you have the symbol for the shares or warrant that you wish you buy, you must next determine the price you want to pay in U.S. dollars. Frequently, the last price you see using the symbol is not current. Remember, the primary market is in Canada and the shares may have not have traded in the United States in days or weeks, so NEVER rely on the last price you see.

Verify the price in Canadian dollars and then if necessary, we need to convert to the current U.S. dollar exchange rate.
Yahoo Currency Exchange Rate

Currently, the Canadian dollar is .9829 to the USD so, we would take the Canadian price of the shares/warrants and multiply by .9829, arriving at the price we will pay for the shares.  Always start with the price in Canadian dollars and convert to USD.

Simply put, retrieve the U.S. symbol using one of the steps above and then convert the last Canadian quote to U.S. dollars and enter your order.

Now I will discuss more in depth, warrants and issues unique to trading them.

Understanding Warrants 

Did you know that warrants have been in existence for many decades but very few investors know about them?  Why?  Unfortunately, very few of the professional newsletter writers and analysts understand them so they do not write about them.  Are warrants that difficult to understand?  Of course not; it’s just that one needs to take some time to learn and understand this incredible investment vehicle.

Have you ever participated in a private placement of shares in your favorite mining company?  If you, so probably received some warrants in this private placement and a good chance you did not even understand what you received.

So let us give you a brief introduction to warrants.

A warrant is a security (like an option) giving the holder the right, but not the obligation, to purchase the underlying stock at a specific price, within a specified time period. Sounds very much like a call option or LEAP, doesn’t it?  Very much so.

Actually warrants are issued by a company usually in connection with a private placement or a financing arrangement and many of the warrants issued will remain privately held and will never trade in the open marketplace.  

Fortunately, there are many warrants that trade on the Toronto Exchange and a few in the United States on the NYSE and the AMEX and many others are traded in the U.S. OTC market with assigned symbols.  As an individual investor, your objective, in our opinion, should be to trade the warrant, without an intention to exercise the warrant.

Currently there are many warrants trading with expiration dates out to the year 2012 (one out to 2017) and though warrants expiring within, say, 2 years, may possess great upside leverage and potential for gains, they also pose a greater risk.  Therefore, we personally suggest that investors focus their attention on those warrants which have a remaining life of at least 2 years before the expiration.

As with any investment you must decide how much of your portfolio to allocate to different sectors, different shares, ETF’s, mutual funds, gold bullion, etc. 
 
Even though we personally view ‘long-term warrants’ as investments (as opposed to speculation), we find an allocation of 10% to 20% maximum of your portfolio as a reasonable allocation of your total dollars to this investment vehicle.

To summarize, an investor may wish to purchase a warrant which is the option (the right) to purchase the common stock of a company.  He may prefer to purchase the warrant instead of the common stock because the warrant offers more potential gain, that is, the warrant offers the investor leverage.  Using a portfolio allocation of 10% - 20% and buying long-term warrants on some of your favorite mining shares, you are now in the position to capture some incredible potential gains in this bull market in the natural resource and commodity sector.

How to Trade Warrants

Are you frustrated with your current brokerage firm because they don’t know anything about Canadian mining shares and warrants?  They don’t think it is such a good idea to own such shares/warrants because they are supposedly too risky (even though you know better)?  And, to top it off, they don’t know how to go about placing your orders and, as such, refuse to accept your orders?

Ah, to be a Canadian investor who can purchase shares of Canadian companies and their warrants with ease online or through their regular stockbroker.

If your U.S. brokerage firm will not execute your orders for the Canadian stocks and warrants you want to buy we would like to suggest you consider doing business with PennTrade in addition to NetVest that we have been using for many years.

We are excited to share with you, PennTrade.  They are the online trading division of Pennaluna & Company which has been in business since 1926.  They are located in the heart of mining country, Coeur d’ Alene, Idaho.  The back office and clearing services are performed by National Financial Services which also does NetVest’s.

Commissions are $29.95 per trade with the 10^th trade free.  Remember, with warrants, we suggest you take a position as an investor and focus on those warrants which have a remaining life of at least 2 years so commissions should not be a major consideration in your buying decision.

Approximately 60% of the Canadian warrants trading have been assigned U.S. symbols to facilitate trading in the U.S.  The remainder requires calling the broker to place the order using the cusip number.  This has never been an issue for me at NetVest and I will continue to maintain my account with them but I have opened an account at PennTrade and will do my online warrant trading with them.  If you have opened an account at NetVest based upon our previous advice, great.  There is no reason for you to switch unless you wish to do all of your trading online.  Both firms offer a great service and reasonable commissions.

International Investors:

PennTrade will also allow you to open an account with slightly more information from you.  Please see their website for details.

________________ 

Our challenge has previously been two-fold:

    1. To furnish knowledge and information on warrants

    2. To assist investors worldwide in how to trade warrants

Mission Accomplished!

We now have a free Learning Center to assist with educating the investment community regarding the incredible opportunities that warrants can provide.  In addition, for our subscribers, we strive to furnish the best database for the warrants with the most detailed of information and leverage calculations for your convenience.

And now we make it easy for U.S. investors to purchase Canadian shares and warrants by suggesting they open an account at PennTrade to facilitate their online trading of all Canadian shares and warrants.

Now, it is up to you!

We will continue to strive to improve our website and information which we furnish to investors but you must make the decision and execute the trades to make it happen.
 

Dudley Pierce Baker
Owner/Editor
PreciousMetalsWarrants

Footnote:

We have no financial interest in, nor arrangements with PennTrade or NetVest, other than suggesting the best brokers, to our knowledge, to assist with your purchases of Canadian shares and warrants.