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Everything You Need Know About Questrade’s Margin Account

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As an investor, you might be looking to purchase some securities. This can be done by using a brokerage account. It is important to note that there are two types of these accounts: margin accounts and cash accounts. If you are just starting out, you might have some trouble figuring out these accounts, so let’s start with how a margin account works for you.

What Is a Margin Account?

At its simplest, a margin account is an account that allows you to operate without having the physical available cash. So, as an investor, you can borrow money against the value of the securities in your account.

Basically: you can borrow funds to buy more stocks or other assets. This is optional, of course, and if you do choose to borrow funds, you will be charged interest until you pay that money back.

Additionally, with your margin account, your securities may be lent out at any time without notice or compensation to you as the investor. But this is only if you hold a debt balance or a negative balance on the account.

Ultimately, a margin account can be very useful, depending on how you use it. Like if you take out a stock in a company that you believe will have a fall in price. If this does happen, you earn the money back that you borrowed to buy. You just have to be careful since you must have a certain margin ratio in your account at all times.

How Questrade Margin works

Questrade Margin

Questrade works like your usual margin account: you have no limit on the number of deposits and withdrawals, can borrow funds, and will be charged interest for doing so. Of course, you can sell a stock or another asset or add other funds.

These are non-registered accounts, which means that you will be taxed on the transactions you make. Because they are not registered, though, this is what lets you operate with no limit to your deposits and withdrawals.

All of this borrowing for funds is completely optional. Actually, you can use your Questrade margin account like a regular cash account if you want. You only need to use the cash you already have available to purchase your stocks.

As long as your cash balance is not negative, you will not be charged any interest on your transactions, and you can use your account as a regular cash account.

If you want to check your cash balance, go look on the Summary page or on the Trade section right there on Questrade.

Interest Charged

If you choose to use your Questrade margin account as a margin account, this means that you are borrowing money to buy stocks. You will be charged interest on those borrowed funds.

For a Questrade account, your interest fees will be 3.5% on any balances under $100,000. For balances that are over $100,000, the interest rate will be 2.5%. This does add up, so if you want to borrow to invest, you will be paying over 6%, which can be expensive for a lot of people.

You should see your interest charged daily if you check your balance. You should be paying it by the mid-month mark every month.

Your interest rate might be just a little different, depending on what type of currency you’re using. For example, if you use CAD, it will be 6%, but if you use USD, your interest will go up to 7%.

Check around at the start of the year to see if the interest rate has changed, but the only way to actually stop needing to pay an interest payment is to sell enough stocks or assets to cover any negative balance or to otherwise deposit cash into your account.

There is a risk to using your margin account. If you have a major loss in your investment, you will still have to pay the interest back on your investment.

Account Fees

Questrade will charge fees per sell or buy trade. This is separate from the margin interest that will apply only once the cash balance has gone negative. In contrast to Questrade, big banks, like RBC Direct Investing or TD Direct Investing, will charge around a $9.95 commission fee for each buy or sell trade.

Questrade also offers a monthly subscription for those who are more active traders. This can come to a cost of approximately $89.95 a month for reduced pricing. There is also a Fixed and Variable plan offered by Questrade for active trader pricing.

The Fixed plan has a pricing of $4.95 when it comes to stocks, while the Variable plan can have a pricing of up to $6.95 when it comes to stocks.

In order to activate the active trader pricing, you must visit the Questrade website. From here, you will go to Market Data which can be found under Account Management. You are then able to select either Advanced U.S. Streaming or Advanced Canadian Streaming. This can be canceled at any time.

Risks

When it comes to using margin, there can be many risks involved. One of the risks is that the interest rate is linked to the prime rate.

This risk comes especially when the cost of investing goes up. You will need to pay interest on your margin account. This payment comes along with any commissions or trading fees that you may already be paying.

The biggest risk that comes with using margin is that you could face a major paper loss in your investment. You would then still need to return the debt on your interest and margin.

You will also need to keep the proper proportion of margin available. If you do not keep the proper proportion of margin available, you could get a margin call.

During a margin call, your brokerage will sell some of your investments automatically and realize your losses. However, it is important to note that maxing out margin requirements may not be ideal, as a small drop in stock can trigger a margin call.

During a margin call, you have a few options:

  • You can liquidate or close positions in your account
  • You can deposit more money into your account
  • You can cancel any pending orders in order to open a position

Margin Requirements

Questrade Vs. Interactive Brokers

Different stocks have different margin requirements. For example, most volatile stocks, such as Tesla stocks, tend to have a higher margin requirement when compared to a more relatively stable stock that has a low P/E ratio.

For example, a stock may have a margin requirement of 40%. This means you will need to pay at least 40% of the purchase for that stock and borrow the remaining 60%. With this scenario, a stock with a purchase value of $10,000 can be purchased using a cash balance of $4,000 since the margin requirement is 40%. For the remaining 60%, you can borrow from Questrade up to $6,000.

Another example is that a stock has a margin requirement of 50%. For this stock, the purchase price is $5,000. This means that the stock can be purchased with a cash balance of $2,500, and you would be able to borrow the other 50%, up to $2,500, from Questrade.

At Questrade, the initial margin requirement varies. This is based on the actual instrument being traded as well as its entry type, or if it is buy or sell. While it can be higher for some stocks, long stocks, short stocks, and silver have a margin requirement of around 30%. Gold, on the other hand, has a margin requirement of 20%.

While low-priced equities tend to have higher requirements, both American and Canadian stocks are often eligible for the 30% rate.

In addition, Questrade will issue a margin call if it is found that the market price for securities that are purchased on margin drop below a certain threshold. During this margin call, the account holder will be forced to either sell securities or deposit cash.

Conclusion

Over the years, Questrade has improved and become well-loved for their upgrades and ease of use. However, Interactive Brokers does have significantly lower margin account fees at only 1.037%-1.537% compared to Questrade’s 5-6%.

If you are an active trader that wants to trade in international markets, Interactive Brokers is a powerful and dynamic tool to use. With robust research tools to help you, seasoned traders often find Interactive Brokers a more attractive platform to use.