Margin accounts

As a margin account holder, you have the option to borrow money from us to invest. By doing so, you’ll have more money to buy more shares than you’d normally be able to. If your investments increase in value – you earn more money. On the flip side, if your investments decrease in value, you’ll incur larger losses.

While margin accounts are primarily known for their borrowing feature, there are many other benefits to this type of account, such as:

  • Short-selling: only available in non-registered (margin) accounts
  • No contribution limits: unlike registered accounts, there are no limits on the amount you’re can contribute to your non-registered margin account
  • Joint account ownership: you can have two account holders
  • Greater trading flexibility: with margin accounts you have access to trade greater variety of securities when compared to registered accounts.
  • Tax advantages: in Canada, capital gains are taxable at 50%. For instance, if you earn $1,000, you’ll pay tax as if you made $500.
  • Enable complex option trading: with margin accounts, you can enable level 3 & 4 options which include spreads, naked options, and more

  • SwitchArrow Borrowing on margin

    Suppose you have $5,000 in your trading account, and you’re interested in buying this stock that is trading at $10 per share. Normally, you’d only be able to purchase 500 shares [$5,000 / $10 = 500]. If ABC shares increased by $5 a share, you would make a profit of $2,500. However, with margin accounts, you can borrow money from us by using the assets (cash/investments) in your account as collateral for the loan. Equities with a 30% margin requirement will allow you to buy securities by paying only 30% of the trade value upfront while borrowing the remaining 70%. Equities with a 50% margin requirement, can be purchased by paying just 50% of the trade value upfront and borrowing the remaining 50%.

    Each exchange-listed security has its own margin requirement. To check the rate for securities, log in to your trading platform, go to Level 1 and look for Long MR for long requirement position or Short MR for short positions. Instead of investing just the $5,000 as described in the previous example, margin account holders can purchase up to $10,000 of company ABC or 1,000 shares by borrowing $5,000 from us (given the security has a 50% margin requirement). That same $5 price increase would result in earning a $5,000 profit in comparison to the $2,500 profit earned by the trader in the first example who only invested his own cash amount of $5,000.

    On the other hand, buying on margin can also result in larger losses when securities decline in value. When borrowing to invest, you’re required to maintain a certain amount of assets in your account (in the form of cash or securities) as collateral for your loan. A margin call is triggered when the combined value of cash or securities in your account used as collateral drops below the minimum required amount.

  • SwitchArrow Important to know

    Here are some important things to know about margin accounts:
    • Interest charges are applied to your account automatically. To view interest charges, log in to Questrade, click Reports, and tap Account activity. To view rates, visit our website
    • If your investments go down in value, your losses are magnified and you still have to pay back your loan, plus the interest
    • Margin requirement can change at any time without prior notice

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