Comprehensive Wealthsimple Trade review

Wealthsimple Trade

✅ Trade ETFs and stocks commission free
✅ Opening an account takes just a few minutes
✅ No minimum deposit requirements
✅ Sleek, minimalist design
✅ Excellent account security
❌ Cannot trade mutual funds, preferred shares, options, or bonds
❌ There are restrictions on which stocks and ETFs can be traded
❌ Questionable price execution
❌ No dividend reinvestment program (DRIP)
❌ Cannot hold USD directly
❌ Poor customer service
❌ Foreign transactions have a forced currency conversion fee
❌ Available exclusively on mobile
❌ Does not offer margin, RRSP, or RESP accounts
❌ Only supports market and limit orders

What is Wealthsimple Trade?

Wealthsimple Trade is Canada’s newest brokerage, released by the company behind one the country’s most successful roboadvisors, Wealthsimple. With over 175,000 clients and $5B in assets under management, Wealthsimple has become a household name among the investment community.

What sets Wealthsimple Trade apart from the pack is that there are no trading fees. For this reason alone, it’s worth giving them serious consideration when choosing a brokerage.

Wealthsimple Trade’s commission-free business model means big savings on day-to-day transactions, and when it comes time to rebalance your portfolio. This is especially true for investors who want to take a chance picking individual stocks. With Wealthsimple Trade, you can also initiate small positions or invest without much starting capital without fees eating away at your returns.

With that being said, Wealthsimple Trade has limitations that make it impractical to use for many investors. Poor customer service, mobile exclusivity, and delayed quotes are just a few of the drawbacks to using such a minimalist platform.

So, without further ado, here is everything you need to know about Wealthsimple Trade.

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Opening an account with Wealthsimple Trade

Opening an account with Wealthsimple Trade is surprisingly easy. Unlike most brokerages, you won’t need to scan your passport or driver’s license to verify your identity. This is because you’re required to link an online bank account to Wealthsimple Trade as you open an account (you can link more accounts later on).

It took me less than 5 minutes to open an account with Wealthsimple Trade. Back when I was investing with Virtual Brokers, opening an account took weeks and each document needed to be notarized, so this was definitely a breath of fresh air.

New accounts are opened through the Wealthsimple Trade app, which is available on iOS and Android.

What accounts does Wealthsimple Trade offer?

At the moment, Wealthsimple Trade offers cash accounts and TFSAs. They plan on rolling out RRSPs and RESPs in the near future.

Wealthsimple Trade does not offer margin accounts.

Funding your Wealthsimple Trade account

The only way to fund your Wealthsimple Trade account is through an EFT. To do this, you submit a request directly through the app, which is linked to your online bank. Deposits take three business days to clear, and there is a $50,000 maximum per transaction.

Making deposits through the app is a convenient feature, but the three day turnaround time isn’t ideal. Making a deposit with Questrade, for example, usually only takes one day.

You can’t make in-kind transfers to Wealthsimple Trade. If you’re looking to transfer an account over, you’ll need to liquidate your holdings (which will trigger a capital gains tax), wait for the trades to settle, withdraw the funds, and then make a deposit. In total, this means you won’t be participating in the market for about two weeks.

It’s difficult to transfer a TFSA over to Wealthsimple Trade. This is because you lose your TFSA contribution room whenever you make a withdrawal, and you don’t get it back until the following calendar year. This rule applies even if you’re planning to recontribute the withdrawn amount to a new TFSA.

If you’re looking to transfer your TFSA to Wealthsimple Trade, you should do so in December, so that you won’t have to wait too long before you can recontribute the withdrawn amount.

Does Wealthsimple Trade have a minimum deposit requirement?

Wealthsimple Trade does not have a minimum deposit requirement, or any other account minimums. This is definitely a plus, especially considering their target demographic is young investors and people who are just beginning to build their savings.

Is there a fee for closing a Wealthsimple Trade account?

There is no fee for closing an account with Wealthsimple Trade. This perk, combined with having no minimum deposit requirements, means that it’s really easy to give the platform a try.

Remember, most brokerages do have a fee for closing an account, and, unlike most brokerages, Wealthsimple Trade will not reimburse that fee if you are moving an account over to them.

What kind of securities can be traded with Wealthsimple Trade?

At the moment, you can only trade stocks and ETFs with Wealthsimple Trade. You cannot trade mutual funds, preferred shares, options, OTC securities, futures, rights, warrants, bonds, or participate in IPOs.

Additionally, the only stock exchanges available with Wealthsimple Trade are the NYSE, NASDAQ, TSX, and TSXV. This isn’t a big deal for most investors, but if you’re looking to invest directly in foreign markets you’ll need to look elsewhere.

Other Wealthsimple Trade restrictions

There are several other important restrictions to consider when you invest with Wealthsimple Trade.

For starters, you can only trade stocks and ETFs if the share price exceeds $0.50 and the average daily volume exceeds 50,000. Furthermore, if a stock is cross-listed you will only be able to trade the Canadian-listed version. For example, you can buy TD.TO, but not TD.US.

Wealthsimple Trade only supports market orders and limit orders. You cannot place LOO, LOC, stop, trailing stop, or trailing stop limit orders.

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Wealthsimple Trade stock and ETF quotes are delayed by 15 minutes. You can circumvent this by getting up to date prices on a website like BNN.

Lastly, Wealthsimple Trade does not offer a dividend reinvestment program (DRIP).

Wealthsimple Trade fees

A complete list of Wealthsimple Trade’s fees can be found here.

Needless to say, there aren’t many of them. There is just the industry-standard $35 NSF fee, and a 1.5% currency conversion fee.

Wealthsimple Trade’s currency conversion fee explained

Wealthsimple Trade’s currency conversion fee is one of the most important things to consider before opening an account with them. Each time you buy or sell an American stock or ETF, there is a 1.5% currency conversion fee.

For example, if I bought $1,000 USD worth of Apple, and the true exchange rate was 1.25:1, I would expect to pay $1,250 CAD. However, with the currency conversion fee, I’d actually end up paying $1,268.75.

Furthermore, if I chose to sell my new shares right away, I’d only receive $1,231.75 CAD. As you can see, this is an expensive trade.

To Wealthsimple Trade’s credit, this is standard industry practice. In fact, many brokerages charge over 2% to convert currencies. However, there is a big difference – most brokerages allow you to keep the converted currency for as long as you want to, meaning that the same funds can be used to trade in that currency indefinitely.

Wealthsimple Trade does not allow you to hold USD or any other currencies in your account. This means that each and every trade you make in USD is going to be hit with a 1.5% currency conversion fee. This fee is so significant that the app is essentially useless for trading American stocks and ETFs.

Traditional brokerages, like Questrade, have another advantage in that you can use a technique called Norbert’s Gambit to avoid currency conversion fees. Because Wealthsimple Trade does not offer the American version of cross-listed securities, this is not possible on their platform.

With that being said, you can get exposure to US equities through Canadian-listed ETFs, so it’s still possible to build an internationally diversified portfolio with Wealthsimple Trade. For more information on investing in the US with Canadian ETFs, check out this article.

Price execution at Wealthsimple Trade

Another factor to consider when choosing a brokerage is price execution. This is something that investors don’t usually consider, but in some cases can result in a brokerage with $5 commissions being cheaper than a ‘free’ alternative.

A classic example of a brokerage with poor price execution is Robinhood:

When you buy or sell shares on Robinhood, the app is likely executing your trade at a slightly worse price than another broker would.

Alexander Osipovich, The Wall Street Journal

Does Wealthsimple Trade fall into this category? Well, their website seems to indicate that they don’t:

We don’t make money by selling your information or data to any third parties. We also don’t make money by selling order flow — a practice whereby some companies sell their customers’ orders to high-frequency trading firms. We have no plans to receive payment for the orders that are submitted on Wealthsimple Trade. Orders are always executed at the best available price and we do not receive any payment or incentives to route our orders in a particular way.

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However, I’ve tried sending identical orders with Questrade and Wealthsimple Trade at the same time, and I’ve noticed that prices are consistently lower with Questrade. This could be coincidence (this experiment is not exactly scientific), but it has shaken my confidence in Wealthsimple Trade.

Even stranger, market orders sometimes take a full minute to fill, when by definition it should be instantaneous. If they’re not trading against you, then what gives?

One possible explanation is that because Wealthsimple Trade routes orders exclusively through the NYSE, TSX, NASDAQ, and TSXV, Questrade is able to find better prices on another exchange, likes BATS.

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Is Wealthsimple Trade safe to use?

Wealthsimple Trade uses the same encryption technology as other online banks and brokerages. Your deposits are CIPF insured up to $1M, which is the industry standard. Two factor authentication is on their list of updates coming in the near future.

You can also use your fingerprint to login to the app, which is a convenient feature.

Wealthsimple Trade’s design

There’s one thing you can say about Wealthsimple Trade: it looks amazing.

The minimalist design is perfect for investors who want to place their orders without getting caught up in charts and analysts’ reports.

Your total portfolio value is displayed on the homepage, and it’s the first thing you see when you login. It beats me why this isn’t the case with every brokerage!

Customer service at Wealthsimple Trade

Customer service at Wealthsimple Trade is very minimal. You cannot place orders or ask questions over the phone, and all technical issues are resolved through an email ticket system.

Conclusion: who should open a Wealthsimple Trade account?

It’s easy to see ‘no fees’ and think that Wealthsimple Trade is the way to go for everyone, but that is not the case.

Wealthsimple Trade is ideal for a select group of investors. If you check all of these boxes, you’re probably one of them:

  • You want to trade individual stocks
  • You only want to trade in Canadian dollars
  • You don’t want to trade on margin
  • You aren’t bothered by the minimal customer support
  • You’re happy trading exclusively on your mobile phone

Since there’s no minimum deposit requirements or fees for closing an account, there’s no risk in giving them a shot if you’re unsure.

My general brokerage recommendations have not changed. For the vast majority of people, Questrade is still the best option on the market. If you’re a frequent trader, you use margin, or you have a very large portfolio, Interactive Brokers is the way to go.

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