What you need to know about Margin Accounts (2024)

Benefits of a margin account

• No contribution limits

  Unlike registered accounts, margin accounts have no limit to the amount you deposit in the account. You can also withdraw money from the account at any time.

• Capital gains receive favourable tax treatment, usually at the base rate of 50%

  Only a fraction of your realized gains (typically half (50%), sometimes up to two-thirds (66.67%)) count towards capital income. This is called the capital gains inclusion rate.

  If you hold your account as an individual, only half (50%) of the first $250,000 of capital gains are included in your taxable income.

  Individual capital gains in excess of that first $250,000, or any capital gains from accounts held as a corporation or through trusts, have an inclusion rate of two-thirds (66.67%) which means two-thirds of these capital gains are included in your taxable income

• Leverage your assets for extra buying power

  Unlike in registered accounts (TFSAs, RRSPs, etc.), you can borrow money from Questrade to invest in your margin account. This gives you more flexibility to jump on possible trading opportunities without needing to deposit more of your own money. While you can earn more money using this method, if your investments decrease in value you may also be open to larger losses.

• Shorting capabilities and access to over-the-counter U.S Markets

  You’re able to short stocks, ETFs and other securities (profit from when a security falls) in margin accounts. You can also access some smaller U.S. exchanges (like the Pink Open Market). These markets aren’t allowed to be traded in your registered accounts because securities on these markets may carry greater risk.

• Place complex options trades

  In a margin account, you can trade more complex types of options. You can enable level 3 & 4 options which include spreads, naked options, and more. Complex options are reserved for more advanced options traders.

Risks of borrowing on margin

• Cost of interest

  While borrowing money in a margin account is by no means required, choosing to borrow funds is one way to be more flexible with your trading, as mentioned above. Any amount borrowed will gather interest charges, and you can "pay back" the negative balance by selling your positions, transferring funds, or depositing new funds. We will update the interest rate whenever the prime interest rate changes.

• Bigger losses

  Leveraging your assets (see above) is a great way to maximize your potential profits, but it can also hurt your bottom line more if your investments move against you. Not only will you lose money on the trades you make, but you will have to repay any money borrowed, plus the interest that was generated.

• Over borrowing (margin call)

  The amount of money you can borrow to trade is determined by your current assets and the cash in your account. When these values change (because of a withdrawal, your positions falling in value, or other events), your account can be “over borrowing” and you will be in a margin call. If this occurs, you will be notified of the margin call, and you will then have to take action (like deposit more money or close out positions) to get your account back in good standing. Otherwise, Questrade may need to take action for you. Please refer to your account opening documents for more information regarding margin calls.

How to use margin

• Buying on margin at Questrade

  The trading platforms will use any remaining cash in your margin account before borrowing funds to invest. If you do not have cash available for the full position, you will begin to borrow as long as you meet the margin requirements for the specific security.

• What are margin requirements and how they work

  Every security (stock, ETF or otherwise) has its own unique margin requirement. The margin requirement is the amount of equity you’re required to have to borrow the remaining on margin. For example, if a stock has a margin requirement of 30%, to purchase $1000 worth of the stock, you would only require $300 to make the purchase. The other $700 can be borrowed on margin.

• Using margin with U.S. securities

  When you buy U.S securities with a margin account, you have two options.

  • Default option. Your margin account will borrow U.S. dollars and keep the Canadian dollar equivalent in your account, ready to use for another trading opportunity. You will be charged interest as soon as the trade settles.
  • You can exchange your Canadian dollar funds to U.S. funds to avoid borrowing U.S. dollars and instead using the cash that is in your account. Questrade does not automatically convert funds in margin accounts.

Investments you can hold in a margin account

You can hold almost any type of investment in a margin account:

Benefits of a Questrade margin account

• No annual account fee. No opening fees.
• Hold both Canadian and U.S. dollars in the account at the same time.
• Open the account in minutes.
• Ability to increase your buying power in your margin account by linking it to the assets in your TFSA with Margin Power