Cash vs Margin Account in Canada — Differences, Risks, and Portfolio Tracking

When you open a brokerage account in Canada, you face a fundamental choice right at the start: a cash account or a margin account. The difference is not cosmetic — it determines your maximum risk level, your financial obligations to the broker, and even how you need to calculate your true net worth.

This article explains how each account type works, what it really means to borrow on margin, what the concrete risks are (and they are real), and how a tracking tool like WealthWise correctly handles margin debt to give you an accurate picture of your wealth.

The cash account: investing only what you own

In a cash account, you can only invest the funds you have deposited. It is that simple. If you deposit $10,000 and buy $10,000 worth of securities, that is it — you cannot buy anything else until you sell or deposit more.

Settlement: how T+1 works

In Canada and the United States, stock trades are not finalized instantly. Markets operate on a T+1 settlement rule since 2024: the trade settles the next business day after the buy or sell. In practice:

• You sell shares on a Monday → the proceeds appear as available on Tuesday
• If you reinvest those funds the same Monday (before settlement), some brokers allow the use of unsettled funds — others block purchases until T+1
• Using unsettled funds to buy securities and then selling them before they settle is called free-riding in a cash account — your broker can freeze your account

In a cash account, your losses are capped at what you invested. You can never lose more than your starting capital. That is the core protection this account type offers.

The margin account: borrowing against your holdings

A margin account lets you borrow money from your broker, using your portfolio holdings as collateral. The broker lends you a fraction of the value of your securities — typically 30% to 70%, depending on the liquidity and volatility of the holdings.

How margin borrowing works in practice

Here is a simplified example. You deposit $20,000 and invest it in a portfolio of Canadian equities. Your broker grants you a 50% margin rate on those securities, meaning you could borrow up to an additional $20,000 — and invest a total of $40,000.

Margin interest: a cost that is easy to underestimate

Margin borrowing is not free. Canadian brokers charge interest on the borrowed balance, calculated daily and debited monthly. In 2026, typical rates range between 7% and 10% annually, depending on the broker and the amount borrowed (some offer preferential rates above thresholds like $250,000).

On a $20,000 margin loan at 8% annual interest, that is $1,600 per year you owe regardless of your portfolio's performance. If your portfolio stagnates, you still accumulate that debt. Interest compounds onto the borrowed balance if you do not pay it separately.

Tax-wise, in Canada, interest paid on funds borrowed to earn investment income (dividends, interest) is generally tax-deductible in a non-registered account. This deductibility does not apply in a TFSA or RRSP — and margin is not permitted in registered accounts anyway.

The real risks of margin

Loss amplification

With margin, gains and losses are amplified relative to your personal capital. Back to the example: you invest $40,000 ($20,000 of your own + $20,000 borrowed). If the market drops 25%, your portfolio value falls to $30,000.

• You still owe the broker the $20,000 you borrowed
• You are left with $10,000 — a 50% loss on your personal capital
• Without margin, a 25% drop would have left you with $15,000 — a 25% loss

Margin doubled your percentage loss. In an extreme scenario, if the market drops further, you can lose more than your initial capital and end up owing money to the broker.

The margin call: forced to sell at the worst moment

Every broker enforces a maintenance margin requirement — the minimum proportion of equity you must maintain in your account. If your securities lose value and that proportion falls below the threshold (often 30% of total account value), you receive a margin call.

A margin call forces you to:

1. Deposit additional funds within the broker's deadline (often 24–48 hours)
2. Or liquidate positions to repay part of the loan

The classic trap: the market drops precisely when your personal liquidity is also under pressure. You are forced to sell at a low price, locking in losses that the market might have recovered from if you had been able to wait. If you do not respond in time, the broker can liquidate your positions themselves — without your agreement.

Positions can move against you faster than you expect

Markets can move 5% to 10% in a single day during an economic or geopolitical shock. In a heavily margined account, one day of sharp volatility can trigger a margin call — even if you believe the pullback is temporary. Margin does not always give you the luxury of waiting for a recovery.

Margin debt and your true net worth

Here is a nuance many investors overlook when tracking their portfolio: the gross value of your holdings is not your net worth if you carry a margin debit balance.

Example: your account shows a portfolio value of $85,000. But if you have a $30,000 margin balance owed to the broker, your actual net worth in that account is $55,000. Conflating the two means overstating your wealth by $30,000.

WealthWise handles this correctly. When you connect or import a margin account, the margin debt (tracked internally as __MARGIN_DEBT__) is automatically subtracted from the gross position value to display your true net worth in the dashboard. You do not see $85,000 if you owe $30,000 — you see $55,000, which is the truth.

This matters especially for accurate portfolio tracking and any FIRE calculation: a retirement target based on a figure inflated by margin debt leads to poor decisions.

Margin accounts: who should consider it, and who should avoid it

Profiles for whom margin may make sense

• Very experienced investor with a large portfolio, using margin temporarily to capture a specific opportunity (e.g., buying during a correction, repaid quickly)
• Tax-optimization strategy: borrowing on margin to invest in an RRSP or contribute to an RESP can provide interesting deductibility in some cases — evaluate with a tax professional
• Access to liquidity without selling: some investors use margin as a short-term credit line for one-off needs, avoiding crystallizing taxable capital gains

Who should stay in a cash account

• Beginner investors: managing a leveraged portfolio before mastering the fundamentals is one of the leading causes of major losses
• Investors with variable or unstable income: if a margin call hits at the same time as a drop in income, you may be forced to sell under the worst conditions
• Any portfolio in a TFSA or RRSP: margin is simply not permitted in registered accounts
• Investors who have never experienced a bear market: without having lived through a 30–40% correction, it is hard to appreciate the psychological weight of a margin call in the middle of a market panic

Cash vs margin: summary comparison

How to open (or choose) the right account type

Most Canadian brokers — Wealthsimple, Questrade, Disnat, and the big banks — offer both account types. In some cases, the margin account is the default for non-registered accounts (notably at Questrade), and a cash account must be explicitly requested. Always verify which account type you are opening.

If you are starting out, it is generally advisable to begin with a cash non-registered account or a TFSA — where margin is not permitted anyway. Once you have mastered portfolio management, rebalancing strategies, and lived through a few market cycles, you will be better equipped to assess whether margin belongs in your strategy.

To compare Canadian brokers and their account offerings, see our Wealthsimple vs Questrade vs Disnat 2026 comparison. If you are considering moving an existing account, our guide on transferring a brokerage account in Canada walks you through the process step by step.