Margin call FAQ

• What is a margin call and how do I know if I am in a margin call?
• How is a margin call calculated?
• What can cause a margin call?
• How can I cover my margin call?
• What are the acceptable funding methods to satisfy a margin call, and what do I do after a deposit is made?
• Why is a PAD not accepted as a method to cover my margin call?
• Why doesn't my buying power change throughout the day with my positions? Where can I see my Real-Time Buying Power (RTBP)?
• What happens if I don't cover my margin call by the due date? How much do I have to sell to cover the margin call?
• Can I transfer money from my Margin Power linked TFSA to cover the margin call? Can I sell positions in my linked TFSA to cover the margin call?
• Why did my positions get liquidated before the due date?
• How am I notified about a margin call? Why are you asking me to cover my margin call on short notice?
• Why does the margin call due date vary?
• I didn't receive a margin call notification, yet my positions were liquidated. Why?
• How can I avoid using margin?

When borrowing funds on margin or short selling, you’re required to maintain a certain level of equity in your account as collateral. A margin call happens when your account’s equity falls below the minimum amount required (margin requirement).

To check if you are in a margin call, look at the combined Buying Power (RTBP) on your Questrade trading platform. If the buying power is negative, you are in a margin call. Learn more about how to view real-time buying power

Buying power is the measure used to determine your account’s margin status. Your account is in a margin call if your combined buying power is negative.

Buying Power = Total Equity (Cash + Market value)  −  Margin Requirement

Example 1: You deposit $10,000 cash into your new margin account and have not made a trade yet. Your cash total is $10,000 and your market value is $0, meaning your buying power is $10,000.

Using the Buying Power = Total Equity (Cash + Market value)  −  Margin Requirement formula:

• Cash: $10,000.00 
• Market Value: $0  
• Total Equity: $10,000.00 
• Margin requirement: $0   
• Buying power: $10,000.00 

Example 2: With your $10,000 deposit, you buy $20,000 of stock ABC with a margin rate of 30%.

• Cash balance: -$10,000 (cash balance: $10,000 - market value: $20,000)
• Market value: $20,000
• Total equity: $10,000 (cash balance: -$10,000 + market value: $20,000)
• Margin requirement: $6,000 (market value: $20,000 x margin rate: 30%)
• Buying power: $4,000 (total equity: $10,000 - margin requirement: $6,000)

Example 3: Stock ABC drops by 30% from $20,000 to $14,000.

• Cash balance: -$10,000
• Total equity: $4,000 (cash balance: -$10,000 + market value: $14,000)
• Margin requirement: $4,200 (market value: $14,000 x margin rate: 30%)
• Buying power: -$200 (total equity: $4,000 - margin requirement: $4,200)

Since the buying power balance is negative, your account is in a margin call and you need to deposit funds or liquidate shares to bring the buying power value to a positive amount. These examples demonstrate how leverage can amplify both gains and losses. Understanding margin calculations can help you avoid margin calls.

Margin calls can be caused by factors such as:

• Securities purchased on margin have decreased in value
• The shorted securities have appreciated in value
• The margin requirement increased for the individual securities
• The exchange rate between Canadian and U.S. currency has fluctuated
• The interest expense incurred from borrowing
• Borrowing cost on short position

You can cover a margin call by:

• Adding more funds to your account
• Reducing the position size in your account
• Canceling pending orders to open a position
• Using Margin Power to link the assets in your TFSA to your margin account

Note: Pre-authorized deposits (PADs) cannot be used to cover margin calls.<

1. Bill Payment: If you are funding in Canadian dollars, the most popular method is an online bill payment that you can make via your financial institution's online website. This is a similar process to paying a Visa or phone bill through your online banking. You will need to add a new payee in the name of “Questrade Online Brokerage”, “Questrade Inc”, or “Questrade”. Then you can use your Questrade account number as the account number. 
   As soon as you've made your deposit, you must send a screenshot as a proof of payment to [email protected] or by fax to 1-888-767-1819. This will allow us to identify and leave a note on your account as it takes 1 to 2 business days for Questrade to receive the funds from bill payments.
2. Visa Deposit: You can fund your account instantly using your Canadian Visa Debit card by logging into your Questrade account and selecting Move money > Deposit > Visa Debit. With Visa debit, deposits are processed instantly and you can add up to $10,000 CAD per day depending on your bank’s daily withdrawal limit. 
3. Interac e-transfer: You can add  up to $3,000 CAD per day depending on your bank's daily withdrawal limit. To use this method, log into your Questrade account and select Move money > Deposit > Interac e-Transfer. Please note that this method may need additional validation by Interac, which may delay the processing time. However, it is usually processed within 30 minutes. 
4. Wire transfer: You can fund your account in either CAD or USD using wire transfers. To use this method, you can find the wire information that you would need to provide the bank by logging into your Questrade account and selecting Move money > Deposit > Wire transfer. Deposits initiated using this method are often received within the same day.

Note: Pre-authorized deposits (PADs) cannot be used to cover margin calls.

Pre-authorized deposit (PAD) is not accepted because the processing time contradicts the urgency of Margin calls, which require immediate access to funds to address potential losses or maintain required margin levels.

Buying power and max buying power are visible on your Balances page and are updated at the start of each business day based on the previous trading day’s close prices. It also considers open/queued buy orders. Updates occur after a trade is executed, reflecting only the trade’s value and margin requirement, not market value changes.

Real-Time Buying Power (RTBP) includes the impact of changes in the market value of your positions. 

RTBP in Edge Web:

When using our Edge Web platform, your combined Real-Time Buying Power will be visible at the top of the Account page, under the Positions tab.

RTBP in Edge Desktop:

To view your combined RTBP in Edge Desktop, click the Account widget and select the Summary or Positions tabs. Your RTBP will be visible on the right-hand side of the window next to your P&L figures.

Positive RTBP values are shown in black, and represent how much additional (extra) buying power you have in your account compared to the overall margin required.

Negative RTBP values are shown in red, and represent when you’re in a Margin call.

Learn more about real-time buying power

If you fail to resolve your margin call by the specified deadline, Questrade reserves the right to liquidate sufficient positions (in accordance with our margin call policy and client agreement) to restore a positive buying power. A service fee of $45, in addition to applicable commissions, will be charged for this action.

Please note unresolved margin calls can lead to negative equity in your account. To prevent this, we may close positions without notice, and you will be responsible for any outstanding amounts owed to Questrade. It is crucial to monitor your account and take proactive measures before the due date.

Formula: Number of shares needed to cover margin call = Margin call amount / (Current stock price * Margin Requirement of the stock）

Example: Assume you have a margin call for $1,000 CAD and plan to sell XYZ.TO stock, trading at $13 with a 30% margin rate. 

Number of shares = 1,000 / (13 * 0.3) = 257 shares. It is the minimum amount of shares required to sell in order to cover the margin call. 

Since the Margin Power from your TFSA is already applied to your margin account, transferring assets from your TFSA will not help cover the margin call.  However, reducing the size of positions in your linked TFSA can improve your buying power. 

To calculate the number of shares required to close in your TFSA, you will need the following:

• Margin call amount from your margin account
• Market price of the security to be sold in your TFSA
• Margin requirement percentage of the security to be sold in your TFSA

Example: Assume you have a margin call for $1,000 CAD in your TFSA linked margin account  and plan to sell XYZ.TO stock in your linked TFSA, trading at $13 with a 30% margin rate. 

Number of shares = 1,000 / (13 * 0.3) = 257 shares

If significant market volatility happens and leads to a substantial decline in account buying power and a risk of negative equity, Questrade may liquidate positions before the due date or without prior notification. This is to mitigate further losses and additional debt to Questrade. A $45 service fee applies to this action, in addition to regular commissions.

If your account falls into negative equity, you must fund it to bring it back to positive equity.

If your account is in a margin call at market close, in most cases you will receive a margin call notification (email and platform message) the next trading day before the market opens. The notification will specify the amount and due date.

For drastic intraday changes, such as extreme volatility or margin requirement changes, we will attempt to contact you immediately via phone, email, and platform message with the real-time margin call amount and a due time. However, Questrade reserves the right to liquidate positions without prior notice to prevent negative equity.

The due date for a margin call depends on several factors, including the margin call amount, the number of consecutive days the account has been under-margined, the severity of the margin call relative to the overall account balance, concentration in a single position, and market volatility.

Positions may be liquidated before the due date or without notice if there is a risk of negative equity.

In adverse market conditions, Questrade may liquidate positions without prior notice to prevent your account from going deficient (negative equity). Notifications are sent on a best-effort basis, but it is your responsibility to monitor your account balance and comply with Questrade's margin requirements regardless of notifications.

To avoid borrowing money for trading, you can open a Cash account. A Cash account requires full payment for securities purchased and does not allow borrowing funds or shares for short selling.

If you prefer to maintain a margin account but wish to avoid using margin, ensure you have sufficient cash in the currency of the stock you wish to buy. Negative balances in CAD or USD indicate borrowing and will incur margin charges.

Example: To buy a USD stock that costs $1,000 USD, you must have $1,000 USD cash in your account before executing the trade. You can achieve this by:

• Converting CAD cash to USD cash. Learn more about currency conversion
• Depositing USD cash from your bank account to your Questrade margin account. Learn more about funding methods

In summary, to avoid borrowing, ensure that your CAD and USD cash balances are always positive when making purchases.

Note: Buying on margin can carry a higher degree of risk, and may not be suitable for investors with a limited risk profile. Please consult with your financial advisor if you are uncertain of the associated risks.

Securities shown are for illustrative, educational, and visual purposes only, and should not be relied upon as financial advice. The information provided is not intended to be and should not be construed as a recommendation, offer, or solicitation to buy or sell.

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.