Toronto-based FinTech giant Wealthsimple launched margin trading accounts for eligible clients this week.
In a blog post announcing the launch, Wealthsimple vice-president of product Swapnil Parikh said that the waitlist for the feature has been one of its largest ever, and those selected for early testing have already accrued more than $40 million in margin balances.
Margin trading is an investment strategy that lets investors borrow funds against their portfolio to increase purchasing power, much like a line of credit but specifically for investing. The brokerage holds the positions in a margin account as collateral for the loan but, if the account drops below a certain value, the brokerage can issue a margin call. This means that the account investor must add funds to the margin account by a certain date, or the brokerage can liquidate (cash out) an investor’s positions.
RELATED: Can Wealthsimple build Canada’s largest financial institution?
Parikh acknowledged the risk that comes with margin accounts, so users must go through a “quick-yet-rigorous” approval process to open an account.
Eligibility is based on self-reported assets, debts, and income, as well as the user’s financial situation at Wealthsimple, a company spokesperson told BetaKit in an email statement.
Wealthsimple is providing risk-conscious features, such as a margin health tracker and new educational resources that outline the dos-and-don’ts for potential margin investors. For example, Wealthsimple advises against investing in speculative and low-returning assets when borrowing on margin, because investors need to outperform their interest rate or they could actually lose more money than if they hadn’t used margin at all.
The margin health tracker shows users a daily gauge of their account’s risk level, and will provide a warning and next steps if they approach triggering a margin call.
This past November, San Francisco-based Iconiq Capital purchased about $100 million in Wealthsimple stock in a secondary transaction with the challenger bank’s current and former employees. Iconiq, a family office that caters to many of Silicon Valley’s elite including Mark Zuckerberg, valued Wealthsimple at $5 billion, making it one of Canada’s most valuable private tech companies.
Wealthsimple co-founders, CPO Brett Huneycutt and CEO Michael Katchen, joined The BetaKit Podcast in October to discuss the company’s 10-year journey, its recent growth, and how it plans to build “the largest Canadian financial institution.”
Feature image by Chloe Lukas, courtesy Wealthsimple.