How Margin Accounts Work
| Feature | Details |
|---|---|
| Borrowing limit | Up to 50% of eligible securities’ value |
| Interest charged | On borrowed amount only |
| Collateral | Your investment holdings |
| Available in registered accounts | ❌ No (non-registered only) |
| Margin call trigger | Equity falls below maintenance margin |
Margin Rates by Brokerage
| Brokerage | Margin Rate | Notes |
|---|---|---|
| Interactive Brokers | ~5.5-6.5% | Lowest in Canada |
| Questrade | ~8.5-9.5% | Competitive |
| TD Direct Investing | ~8.75-9.75% | Prime + premium |
| RBC Direct Investing | ~8.75-9.75% | Similar to TD |
| BMO InvestorLine | ~8.50-9.50% | BMO prime + premium |
| Wealthsimple | N/A | No margin available |
Margin Example
| Step | Amount |
|---|---|
| You deposit | $50,000 cash |
| Brokerage lends (50% margin) | $50,000 |
| Total buying power | $100,000 |
| If investment goes up 20% | Portfolio: $120,000 → Your equity: $70,000 (+40% return) |
| If investment goes down 20% | Portfolio: $80,000 → Your equity: $30,000 (-40% return) |
Margin amplifies both gains AND losses.
Margin Call Example
| Scenario | Calculation |
|---|---|
| Starting equity | $50,000 (50% of $100,000 portfolio) |
| Maintenance margin | 30% |
| Margin call triggered when | Equity drops below $30,000 |
| This happens if portfolio drops to | ~$71,400 (equity = $21,400 / $71,400 = 30%) |
| Action required | Deposit cash or sell holdings |
Risks of Margin Trading
| Risk | Details |
|---|---|
| Amplified losses | Can lose more than your initial investment |
| Margin calls | Forced selling at the worst time |
| Interest costs | Compound daily, eat into returns |
| Forced liquidation | Broker may sell without your consent |
| Market volatility | Short-term drops can trigger calls even on good investments |
When Margin Makes Sense
| Use Case | Risk Level |
|---|---|
| Smith Manoeuvre (HELOC investing) | Moderate (structured strategy) |
| Short-term bridge financing | Low-moderate |
| Leveraged long-term investing | High |
| Day trading on margin | Very high |
| Speculative bets | ❌ Extremely high |
Who Should Use a Margin Account
| Profile | Recommendation |
|---|---|
| Experienced investor, tax-deductible leverage | ✅ May benefit |
| Smith Manoeuvre strategy | ✅ Structured approach |
| Beginner investor | ❌ Too risky |
| Can’t afford to lose borrowed money | ❌ Avoid |