I've seen a concerning number of posts from people investing with margin lately. The FINRA margin debt level is at an all time high of $1.28 Trillion in January 2026. Let's talk about why investing with margin or debt is so risky. Margin or a margin account is a loan that your brokerage will offer to purchase investments with. It's essentially debt that you don't have in order to have more purchasing power for your investments. Say you have $10,000 in your TFSA, you may be able to receive a margin account of $10,000 which gives you a purchasing power of $20,000 total to buy investments. Sounds like free money right? There are in fact multiple issues with using a margin account. The first is that a margin account is a LOAN. Loans don't get given out for free, they charge interest. Your interest on the loan may be upwards of over 4% a year. You must pay this monthly and take it out of your margin account. If you make 10% during the year, 4% of that will go just to pay interest. The second issue is you are putting yourself at greater risk. Not only are you using debt, you also have to use your own investments at collateral in case of what's called a "margin call". If you have a $10,000 TFSA and a $10,000 margin account, your TFSA will be used as collateral. If the balance of your margin account goes down too quick or too much, the brokerage has a right to sell your investments in the TFSA at any point to cover the losses. A margin call is where the brokerage demands you immediately pay back some of your margin account in order to maintain the suggested rate. This means selling your TFSA investments, paying interest AND potentially paying back losses that you don't even own. This is the greatest risk of playing with margin, you may have to pay back way more money than you even own. If your investments on margin crash you owe the interest for the loan, the losses you incur, and you likely will have to liquidate your portfolio and pay back extra. The third and biggest risk that probably isn't talked about enough is the investments you pick. Not only do you pay interest and risk paying the debt with money you don't have, but you ALSO have to pick the right investments in the first place. Some might use margin to buy more of an index like $VFV or $XEQT to enhance their returns, others may choose to buy a single company like $AMZN or $GOOGL, others may choose income funds to "pay back" the interest and try to earn extra, and some might gamble on highly leveraged plays. Whatever you pick, the problem is you still have to be good at making investment decisions. Not only do you have to make money on your investments, you have to make enough to pay for interest, not have significant losses, and go above and beyond to actually make a profit WITHOUT being margin called. Put aside all the risks of the margin account, if you can't make good investments you won't make any money, and then add all that extra risk back on. My personal stance and what I would tell anyone is to avoid margin completely, doesn't matter how good of an opportunity there is. A "good" investment long-term may still experience years of 10-50% drawdowns that would get you margin called. You not only have to pick the right investment, but you need to make money at the right time, sell at the right time, and be able to cover the interest all while not getting margin called. Doesn't sound so easy? I would encourage you to fully consider your situation if you're currently using margin. Could you afford to pay back money you don't currently have? As always, do your research and happy investing!
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Anthony Holstein@anthony.invests · 5moEdited
I’ve been using margin for a few months. It’s definitely an additional risk but as long as not 100% of the margin is used and you invest for the long term, I don’t see it more risky than other investment accounts. I try not to use more than 33% of my margin given how volatile my TFSA is. (Right now I use 50% of my margin 🙈) If only 33% of the margin is used and is invested in an all-in-one ETF for the long term, the risk of getting margin called is lowered unless the collateral account goes down by like half The risk is lowered significantly and more money invested is more money when you retire at the end of the day My point of view on margin 😄
Canadian Investor@canadianinvestor · 5mo
I agree with you that most people should probably not use margin. That said a couple of points. With a margin loan you are not required to make a monthly payment the value of the loan increases by the amount of interest. Interest on top of interest can occur more risk. The other thing to fully understand is margin maintainence requirement. A margin call may not wipe out your account it could be you having to add a small amount of money. While I don't disagree with the premise I think it works better to be factual vs fear based. If you borrow to buy an S&P 500 index with a 30% margin requirement and you put in $30,000 while borrowing $70,000, you now control $100,000. If the market drops 50%, your portfolio falls to $50,000, but the loan is still $70,000. You are now negative $20,000. To meet the 30% margin requirement, you would need $15,000 in equity, which means you would have to deposit $35,000 just to stay in the position. That’s more than your original investment. This is the risk of fully using your margin. Now compare that to a more conservative approach. If you invest $80,000 and borrow $20,000, you still have $100,000 invested. If the market drops 50%, your portfolio is worth $50,000 and your loan is $20,000, leaving you with $30,000 in equity. You are still well above the required margin. No margin call would happen. Margin calls are often misunderstood and create a lot of fear over what they are and they are handled differently at different brokers. Some give you a notification to make a depost or sell others liquidate immediately. You should know how your broker handles margin calls before you use it and fully understand margin requirements and maintainence. Also understand that brokers can change the margin maintainence on a fund at any time so when you originally invested it might have been 30% but that can change to 50% 70% 100%
Stephen Kostecki@kostecs311 · 5mo
I never use other people’s money to invest. Good post
Sarah Giver@staystronggiver · 5mo
I love this post on Margin Ronan thank you. Ok breathe in....I have ADHD, my family is filled with gamblers, my cousin went all in investing with Margin and he got a margin call during liberation day and he has to completely liquidate his portfolio and he had significant debt from the experience. I asked him later if he learned his lesson, he is doing the exact same thing but he reassures me it's different this time, he needs to use margin to pay off the debts from the last margin call. Meanwhile we are dealing with a war, Energy crisis and I am sorry Blossom community but I am so worried for you guys. Please please please be careful, don't leverage yourself with your entire portfolio. Please if you must do this please please keep 30% around for emergencies. I genuinely think we can easily be in a prolonged bear market, stocks recovering so quickly is not normal.
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