Lesson Margin 201

Interest on borrowed funds

Learn more about how interest is applied to negative balances in your Margin account.

Margin account holders have the option to borrow funds from us for a fee to invest. Interest rates charged change regularly, be sure to check our website for current rates.

Interest is based on an annual rate, calculated daily and charged to the account midway through the following month.

Interest rates apply from the date the trade of the security settles, which is one day after the date of the trade for stocks (known as T+1 business day). This also includes trades for options.

  • If you buy stock ABC on Wednesday, May 1 the settlement date will be Thursday, May 2 (T+1 business day)
  • If you sell the same stock ABC on Friday, May 3, the settlement date will be Monday, May 6 (T+1 business day)

Suppose you purchase $1,000 of XYZ on margin. You would not be charged any interest until the first business day after you bought the stock.

However, if you hold a negative cash balance and you close the leveraged position, interest charges will continue until the closing trade has settled and your cash and debt is reconciled.

Note: Cash you receive from shorting shares will not offset a negative cash balance in your account when it comes to calculating interest charges.

Suppose you hold $10,000 CAD and $0 USD in your margin account and you decide to buy $5,000 of a U.S. stock. After purchase, your USD balance will be negative for the total cost of the trade ($5,000USD+plus commissions), and your CAD balance will remain at $10,000.

While the buy order is settling (as mentioned above), you can place a request manually to exchange CAD cash to cover the USD debt balance as this will not happen automatically. The two-day settlement period can be treated like a grace period; it gives you the opportunity to cover your debt without being charged interest.

If you don’t end up exchanging your CAD funds to cover the negative $5,000 USD, Questrade will begin to charge you interest once the trade settles on the amount you’re borrowing from us ($5000 USD) even though you may have $10,000 CAD available.

If you’re interested in borrowing the $5,000 USD so you can use $10,000 CAD available, you don’t have to place an exchange request just keep in mind that interest charges will apply to your account.

To place a request:

  1. Log in to Questrade.
  2. In the top navigation bar of your screen, head over to the Move Money page and click on Exchange.
  3. Fill out the empty fields and click on SUBMIT to start your exchange request.

The cut-off time to place an exchange request for the next day is 2:30 pm. If you place an exchange request on Monday at 11am ET, the funds will be available in your account Tuesday morning. However, if you place an exchange request Monday at 4:00 pm, the funds will be available in your account Wednesday morning.

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.

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