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Investing in cybersecurity stocks

What to know before investing in this young but rapidly growing industry that protects against cybercrimes.

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Data breaches and hacks can impact the sensitive information of businesses, organizations and individual people. Cybersecurity helps prevent these cyberattacks, and the demand for cybersecurity is expected to soar in the coming years.

What are cybersecurity stocks?

Cybersecurity stocks include companies that offer cybersecurity consultation for businesses and organizations. It also covers cyber recovery solutions if you’ve been a victim of a cyberattack.

Cybersecurity is the art of defending networks, systems and data from digital attacks. These cyberattacks attempt to access information without authorization. They are designed to steal or destroy data, extort money or for other criminal use.

Why invest in cybersecurity stocks?

Cybercrime costs global economies about $600 billion every year, according to the Center for Strategic and International Studies. That’s an increase from the estimated worldwide losses of $445 billion in 2014 and isn’t predicted to decline.

The rise of cyberattacks has prompted public and private organizations to look for solutions to protect themselves from these dangerous and costly breaches. The global cybersecurity market is predicted to grow from $149 billion to $208 billion by 2023, according to a Cybersecurity Global Market Report.

With the growth of cybercrime, firms and governments will turn to cybersecurity companies for help. And since more than half the world is now online and the demand for cybersecurity is more pressing than ever, it might be a good time to invest in cybersecurity stocks.

Risks of investing in cybersecurity

Cybersecurity is a newer industry that got its start with antivirus software and firewalls in the late 80s. Unfortunately, many cybersecurity stocks are based on private companies that are fairly new. And since tech moves fast in the cyber world, smaller, newer companies may struggle to keep up or incur a lot of debt.

Investors may also have trouble gauging winners in the cybersecurity space because the industry is based on hindsight. For example, it is only after a cyber attack that you can definitively evaluate companies and how effective they were in preventing the attack.

The cybersecurity sphere can be volatile as investors and companies are finding their footing.

Cybersecurity stocks

Cybersecurity stocks cover companies that bolster cyber defenses through various services, including hardware and cloud-based software.

  • Open Text Corp. (TXS:OTEX)
  • Absolute Software Corp. (TSX:ABST)
  • BlackBerry Ltd. (TSX:BB.TO)
  • SailPoint Technologies Holdings, Inc. (NYSE:SAIL)
  • Palo Alto Networks, Inc. (NYSE:PANW)
  • Cloudflare, Inc. (NYSE:NET)

What ETFs track the cybersecurity category?

Exchange-traded funds (ETFs) allow you to invest in a spectrum of cybersecurity stocks.

  • iShares Cybersecurity and Tech ETF (NYSEARCA:IHAK)
  • ETFMG Prime Cyber Security ETF (NYSEARCA:HACK)
  • First Trust NASDAQ Cybersecurity ETF (NASDAQ:CIBR)
  • Global X Cybersecurity ETF (NASDAQ:BUG)
  • Evolve Cyber Security Index ETF Hedged (TSX:CYBR.TO)

Are there any cybersecurity ETFs that trade on Canadian stock exchanges?

Evolve Cyber Security Index ETF Hedged trades on the Toronto Stock Exchange, but you’ll have a hard time finding other options in Canada at present. If you want to invest more heavily in cybersecurity stocks, you’ll need to access stock exchanges outside Canada like the NASDAQ or NYSE in the US.

There are several Canadian-based brokerages that offer access to international exchanges on which cybersecurity ETFs trade including Interactive Brokers and Questrade.

Compare trading platforms

Take a look at a few trading platforms to invest in this fast-evolving industry.

Name Product Available asset types Stock Fee Option Fee Account Fee ETF Transaction Cost
Wealthsimple Trade
Stocks, ETFs
$0
N/A
$0
Free
Get a $25 bonus when you open a Wealthsimple Trade account and deposit and trade at least $100.
Questrade
Stocks, Bonds, Options, Mutual Funds, ETFs, GICs, International Equities, IPOs, Precious Metals
$4.95-$9.95
$9.95 + $1 per contract
$0
Free
Opt for self-directed investing and save on fees or get a pre-built portfolio and take some of the guesswork out.
Interactive Brokers
Stocks, Bonds, Options, Mutual Funds, ETFs, Currencies, Futures, Precious Metals
Min. $1.00, Max. 0.5% of trade value
$1.50 min. per order
$0 (if monthly commissions are greater than or equal to US$10.00)
Min. $1.00, Max. 0.5% of trade value
Access market data 24 hours a day, six days a week and invest in global stocks, options, futures, currencies, bonds and funds from one single account.
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Compare up to 4 providers

Bottom line

There are risks associated with investing in cybersecurity stocks. But since the demand for these services isn’t going anywhere, cybersecurity might be a profitable long-term investment.

You’ll need a brokerage account to get started — compare a few trading platforms to invest in data protection.

Frequently asked questions

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.
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