This policy covers, where applicable, Qtrade Advisor, Qtrade Investor and Qtrade Asset Management (collectively referred to herein as "Qtrade").
First trade or no securities value in the account
Trade orders will be accepted only if there is sufficient cash in the Qtrade account (the "Account") to cover the entire purchase (including commissions).
Cash account for senior exchanges (TSX, NYSE, AMEX, Nasdaq National & small cap markets)
Trade orders will be accepted only if there is sufficient cash in the Account or equity (from a different security) equivalent to the value of the trade.
If you have available cash in your Account but it is not in the currency of a trade you wish to make, buy orders will be accepted based on your available cash and the funds will not be converted into the currency the security trades in until we receive your verbal instructions. To place instructions for the conversion of funds, please call a Qtrade Investment Representative at 1.877.669.3977 or 604.605.4198. Please note that you can choose to have a trade settle in either Canadian or US funds by placing the trade in the corresponding Canadian or US dollar account.
When you hold sufficient Money Market or T-Bill funds, you are responsible for redeeming them to cover your purchase if necessary. This redemption order can be placed online or you may call a Qtrade Investment Representative to place the order on your behalf.
Cash account (TSX Venture, CNQ, Nasdaq OTC, and other unlisted markets)
Trade orders will be accepted only if there are: (i) sufficient cleared funds in the Account; or (ii) cleared equity (from securities listed on one of the Senior Exchanges) equivalent to the value of the trade.
For cash to be considered 'cleared', it must: (i) be received by Qtrade by bank draft or certified cheque; (ii) be received by Qtrade via our bill payment system; or (iii) have been on deposit in your Account for 10 business days and drawn on a Canadian financial institution.
Sufficient 'margin excess' to cover the margin required for your purchase must be in the Account at the time you place your order. Margin Excess, also known as 'Buying Power', is defined as the difference between: (i) the loan value granted on securities held in your account; and (ii) the total amount currently being borrowed.
If your Account has insufficient Buying Power available at the time your order is placed, you can generate the margin required by selling a security. Please note that the sale of the security will increase the Buying Power only by the amount of Margin required to hold that security position and only after the sale has been executed.
Option orders will be accepted only if there is sufficient cleared Buying Power in the Account. For Buying Power to be considered 'cleared', the equity in the Account has to satisfy the above definition of cleared funds.
Margin account concentration
Loan value on a 'per security' or 'per sector' basis may be reduced if the Account is deemed to be 'concentrated'. A margin account is considered 'concentrated' when one security or sector represents a significant percentage (approximately 25% or more) of the market value of the Account.
Sufficient cash or cash equivalents (e.g. Money Market mutual funds) must be available in the Account to cover the entire purchase (including commissions) in order for your order to be accepted. It is up to each individual to sell any Money Market fund to coincide with the settlement of a purchase.
Due to the inherent risks of the following trading strategies, Accounts require a minimum of $10,000 equity for: Short selling, spread orders and uncovered equity options. For uncovered index options, Accounts require a minimum of $25,000 equity.
Margin Trading Risks and Benefits
Margin trading is the practice of borrowing money from a brokerage to trade in stocks or other types of securities. Stocks held in your account are used as collateral for the loan, and the brokerage charges interest for the duration of the loan. In the investment world, buying stocks using borrowed money is known as trading “on margin”.
When the price of a stock is rising, trading on margin allows investors to use leverage to increase their gains. However, when stock prices fall, losses mount much more quickly.
Margin loans, when used well, can work in your favour. However, you are taking on a debt which must eventually be paid off. In the meanwhile, as with any loan, you’ll pay interest on the outstanding debt, regardless of whether the stock price goes up, down, or sideways.
A minimum margin must be maintained. Margin requirements are set by investment industry regulations and by your brokerage’s risk management policies.
You would receive a “margin call” if you had purchased stocks on margin, and the value of your account decreased to the point where your margin was below the minimum margin required by your broker. Your broker will ask you to take prompt action in order to restore the required margin. In order to “meet the call,” you’ll need to put more cash and/or more margin-eligible securities into your brokerage account. If you can’t come up with more securities, or cash, then you would need to sell some of your stocks and apply the proceeds to your margin loan – at least enough to restore the balance. If you do not act promptly, your broker will sell enough of your stocks to put the account into positive margin.
If you decide to buy on margin, take a careful, disciplined approach. Margin trading entails additional risks associated with market volatility and requires a high level of attention.
Requirements to be aware of:
You need to have at least $2,000 in cash or marginable securities in your account to trade on margin
You must have at least $10,000 in equity for short selling, uncovered equity options and spread trading
You must have at least $25,000 in equity for uncovered index options
You should avoid holding a margin account with a large margined holding in one security or one sector, and little or no diversification in other holdings or sectors. If you do, your margin account could be deemed to be "concentrated" and the loan value of the security may be reduced
You should leave at least a 10% margin cushion. Withdrawals below 10% margin may be allowed at the discretion of our credit department.