Margin Account

A margin account is a type of non-registered investment account where your brokerage lets you borrow money to invest. Instead of only buying what you can afford with your own cash, you can use your existing holdings as collateral to take on a larger position. The brokerage charges you interest on the borrowed amount.

How it works

Let’s say you have $10,000 in your account and your brokerage offers 2:1 margin. That means you could buy up to $20,000 worth of investments, with $10,000 of that borrowed. If your investment goes up 10%, you’ve made $2,000 on a $10,000 outlay instead of $1,000. But if it drops 10%, you’ve lost $2,000. The losses are amplified the same way the gains are.

If your investments drop too much, the brokerage can issue a margin call, which means you need to deposit more cash or sell some of your holdings to bring your account back within the required limits. This can force you to sell at the worst possible time.

Why it matters

Margin accounts are available at most Canadian brokerages, but they carry real risk. Borrowing to invest can magnify both gains and losses. For most people, investing with money you actually have is the safer approach. Margin accounts are generally used by experienced investors who understand the downside and have a specific strategy in mind.