Lesson Margin 101

Margin calls

Learn about margin calls and why they can occur.

When borrowing funds on margin, you’re required to maintain a certain amount of assets (in the form of cash and/or securities) as collateral for your loan. A margin call is triggered when the combined value of cash and/or securities (used as a collateral for your loan) drops below the minimum amount you require to maintain in your account when borrowing funds.

We typically notify customers by email when their account is in a margin call (on a best efforts basis).

There are a number of reasons why we may issue margin calls:

  • The securities bought with borrowed money have decreased in value
  • The exchange rate between Canadian and U.S. currency has fluctuated
  • Administration charges were deducted from the account (interest charges or other fees)
  • Margin requirement increased for the individual securities (explained in detail below)
  • As mentioned earlier, there aren’t enough assets in the account. Customers who borrow funds must maintain a certain amount of assets in their account as a layer of protection

Margin calls are payable on demand. However, on a best-efforts basis, we give customers the opportunity to cover the owed amount by the due date.

You can cover a margin call by using one of the following methods or a combination of them:

Action Description
Deposit the amount due into your account Instant deposit

 

You can fund your accounts instantly using your Canadian Interac or Visa Debit card by going to Funding > Instant deposit under the ACCOUNTS page. Deposit up to $10,000 per day with Interac or your Visa Debit card. Please contact your bank to authorize deposits over your daily maximum. Each bank may have a daily limit of how much money can be withdrawn using this method. To increase your daily limit, please contact your bank and request a limit increase.

Since this funding method is instant, proof of payment is not required.

Online bill payment

You can fund your accounts by having your Questrade account be a “Payee” on your online banking system. The bank account that is used must be held in the same name as the Questrade account holder.

Since bill payments can take 1-3 business days to arrive, you must send a screenshot as proof of payment to margincall@questrade.com, or by fax to 1.888.767.1819. You must also include their account number in the email or fax.

Proof of payment screenshots are assessed on a best efforts basis and there may be circumstances, especially in extreme market conditions, where the account is liquidated even after proof of funding has been provided.

Note: Pre-authorized deposits (PADs) are not acceptable as a funding method to satisfy margin calls.
Close enough positions to satisfy the entire amount of the margin call
 Close enough positions in your account to satisfy the margin call.
Cancel orders to open positions If you have orders to open a position that require margin, you can cancel them.
Activate Margin Power®

 If you have a tax-free savings account (TFSA), you can connect your margin account to the assets in your TFSA to increase your buying power. To activate Margin Power, an exclusive service from Questrade, log in to Questrade and go to the ACCOUNT MANAGEMENT page. If you decide to activate margin power to satisfy your margin call, please notify us by email at margincall@questrade.com.

Please note: If your account is already linked to your TFSA, then it will have already been taken into account when calculating your margin call, so funds and securities transferred from your Margin Power-enabled TFSA will not cover the margin call.

Questrade sends daily margin call emails and platform inbox messages (usually before 9:30 AM EST) to notify clients who are in a margin call. You will find the amount of the margin call as well as the due date to cover it in the email.

The due date of your margin call is based on multiple factors including but not limited to the amount of the margin call, consecutive days your account has been under-margined, and the severity of the margin call compared to your overall account balance(s).

Please note: It is possible for positions to be liquidated or covered to meet a margin call before the due date. Please read the Important to know section below for more information.

To calculate how many shares could be sold to cover the margin call you need to know 3 things:

  • Your current margin call amount
  • The stock price of the security you are looking to sell to cover the margin call
  • The margin requirement for the specific security from #2, as the number of shares to be sold is calculated based on the margin requirement of the security.

The formula used to calculate this is: [Margin call amount/(stock price * margin requirement)]

For example:

Let’s say you have a margin call of -$5,000 CAD and want to sell just enough shares to cover it. The shares you want to sell are trading at $15.30 CAD, and have a 30% margin requirement.

If these weren’t already in your margin account, you would only need to sell 327 shares (327 x $15.30 = $5003.10) to raise enough capital to cover the margin call (minus any fees or commissions).

However, part of the shares values are already leveraged in the margin account, so each share sold would only cover for their margin requirement, or $4.59 (30% of $15.30) per share. In this case, you would need to sell about 1,090 shares (1090 x $4.59 = $5,003.10) to cover the margin call (minus any fees or commissions).

If you have a security in your margin account with a margin requirement of 100%, or a high-volatility short position with a margin requirement over 100%, then you would still use the same formula: you’d need to sell 327 shares trading at $15.30 with with a 100% margin requirement, or settle 164 shares of a short position trading at $15.30 with a 300% short margin requirement.

Here are some key things to know about margin calls:

  • Each security has its own margin requirement. For example, if stock ABC has a margin requirement of 30%, it means Questrade will lend 70% and the customer will pay with cash 30%. This data shows as Long MR (for long positions) and Short MR (for short positions).
  • All margin requirements that appear in our trading platforms are for information purposes only. Questrade is not responsible for how you use this information to make investment decisions.
  • Margin requirements for securities vary due to market fluctuations.
  • When making a deposit to a Questrade trading account, your bank account (where the money is coming from) and the Questrade account (where the money is going to) must have identical names. For example, if your name at the bank is “James Smith”, your Questrade trading account must be identical to that for us to accept the deposit.
  • If you don’t take action to satisfy the debit balance by the due date or if market conditions require it, we may close positions in your account.
  • At times, due to market conditions, we may be required to immediately close positions in customers’ accounts to satisfy a margin call before the given due date and time without further notice (see section 1.14 of Questrade’s Account Agreements & Disclosures documents).
  • If we are required to close positions for you, we will charge a $45 fee for each trade we make.

Note: The information in this blog is for educational purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade, Inc., its affiliates or any other person to its accuracy.

Related lessons

Want to dive deeper?

Explore

Have more questions?

Tell us what you need help with, and we’ll get you in touch with the right specialist.