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Questrade, etc... - USD -Buying US Stocks on margin as Opposed to buying USD dollars

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  • Dec 9th, 2010 9:28 am
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Newbie
Oct 18, 2010
1 posts
toronto

Questrade, etc... - USD -Buying US Stocks on margin as Opposed to buying USD dollars

Isn't it better to buy US stocks on margin if your cash is in CAD. On the premise that you don't plan to keep your US stocks for along time.

For instance, the margin rates are ~6.5% (I think). If I only plan on selling my US stocks in the short term, then it save the currency conversion commission.

If one buys US Stocks by converting CAD->USD and then back, your are paying ~3%.

Can anyone share their thoughts on this, and whether this is a sound strategy?
Thanks
PhiliO
5 replies
Newbie
Dec 7, 2010
1 posts
lower mainland
i would like to know the answer to this question also. Anyone?
Banned
User avatar
Feb 15, 2008
26318 posts
3242 upvotes
Calgary
6.5% is an insane rate to pay for margin when Fed Funds = 0.25%

Get a new broker. Seriously.

Not very likely that the US dollar is going to depreciate that fast.
Jr. Member
Oct 31, 2006
182 posts
1 upvote
philio! wrote: Isn't it better to buy US stocks on margin if your cash is in CAD. On the premise that you don't plan to keep your US stocks for along time.

For instance, the margin rates are ~6.5% (I think). If I only plan on selling my US stocks in the short term, then it save the currency conversion commission.

If one buys US Stocks by converting CAD->USD and then back, your are paying ~3%.

Can anyone share their thoughts on this, and whether this is a sound strategy?
Thanks
PhiliO

It's a great strategy! In my portfolio I've decided I'm going to expose myself to a little bit of arbitrage anyways, I do this by purchasing my USD stock mostly on margin. I would NOT pay 6.5% interest however, Interactive Brokers is charging 1.7% for USD - the other advantage; you can borrow USD at lower rate than CAD.

That said, depending on how long you hold the stock, who your broker is, and how much money we're talking about, paying 6.5% may work out to be less than exchanging USD/CAD and back again.
Deal Addict
User avatar
Aug 1, 2007
1498 posts
266 upvotes
The interest rates are actually prime + 1.5% (still pretty high) which works out to 4.75% for US stocks and 4.5% for CAD stocks. Depending on the amount and timeline, it could definitely work in your favour by saving on the round trip conversion costs.
Newbie
User avatar
Dec 8, 2010
3 posts
Toronto
I would back JEFGUTH's suggestion on interactive brokers, not only the margin is low you actually converting currencies at forex rates (with their commissions in the single digit range that pretty much means no commission conversion)

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