Margin interest rates lower than your bank

A margin account is a type of investment account that allows you to borrow money from a brokerage (like Wealthsimple) to purchase investment assets (like stocks, options, etc). This increases your buying power, and allows you to invest more and potentially earn great returns.

When you want to make a purchase in a margin account, your existing cash will be used first. If the amount of your trade is more than the cash you have on hand, you can tap into borrowed money to increase your initial investment.

Benefits

• Greater potential returns: Buying on margin increases your buying power, which could potentially increase your returns.

• Flexibility: Buying on margin allows you to move quickly to take advantage of timely market opportunities that you might otherwise miss out on by not having enough cash or liquid assets.

• Access to cash: With a margin account, you can withdraw funds against your assets as long as there is available margin to do so. This is similar to a secured line of credit, using your securities as collateral. This is often cheaper and provides quicker access to cash than other types of loans. Withdrawn money is not taxed and interest charged is tax-deductible.

Risks

• Greater potential losses: Buying on margin can open up the potential to lose more money than your initial investment. The same leverage that magnifies your gains can also magnify your losses. If you buy a security and its price falls, not only will you lose your initial investment, you’ll also still need to repay what you borrowed — whether that’s dipping into other savings or investments, if you have them, or finding other means to repay the loan.

• Cost of interest: As with any loan, the more you borrow, the more interest you’ll have to pay.

• Margin calls: If your account falls beneath the maintenance margin, you’ll get a margin call, and will need add more cash or margin-eligible securities to your margin account (or sell some of your positions) to bring your buying power above zero. If you don’t, the brokerage can sell some or all of the securities in your accounts based on the agreements you signed when you opened your account.

Leverage on securities can vary since it is dependent on the type of security, and the price of the security itself. There are different margin requirements for different securities which are set by the Canadian Investment Regulatory Organization (CIRO). For example, If the stock has a margin requirement of 30% then you can leverage up to 3.33x of your Margin available balance.

Brokerages (like Wealthsimple) can set their own margin requirements, as long as they’re higher than the minimums established by CIRO. They might also set an overall limit on how much you can borrow or a limit for how much you can borrow on a single security, which is known as a concentration limit. These limits may be based on your financial situation, portfolio, or firm policy limits.

When borrowing money from Wealthsimple in your margin account, you’ll be charged an interest rate based on the current CAD or USD prime and your client status. Currently, Wealthsimple charges the following based on your client status:

• Core - CAD/USD prime +0.5%
• Premium - CAD/USD prime +0%
• Generation - CAD/USD prime -0.5%

Interest is accrued daily and deducted from your margin account on a monthly basis.

Currently, clients can trade the following within their margin accounts:

• CAD / USD stocks
• CAD / USD etfs
• Long calls
• Long puts

Stay tuned as we’re actively working on bringing additional trading strategies to our margin offering.

You can currently only open a margin account through our website, not on our mobile app (that’s coming very soon).

Since there’s higher risk associated with margin trading, you’ll need to apply for your account. We’ll ask some quick questions about your employment, financial status, and a few other things. Once you’re approved, fund your account by providing cash or eligible securities as collateral. After that, your account is ready to go!

For step by step instructions, please visit this helpful article.

Yes, As of October 29, 2024. We compared our rates with all margin interest rates with similar asset requirements available from Canadian financial institution listed under Schedule I under the Bank Act.