A few weeks ago I dropped a line admitting to treason. After years of managing my entire portfolio with full loyalty to Questrade, I've moved our joint non-registered (Cash/Margin) account to Interactive Brokers.
I still love Questrade and believe they are a solid best choice for beginning investors and for registered investment accounts (your self-directed TFSA and RRSP). Questrade is easy to use, they are independent, they are cheap, and I've never had any issues with them.
Questrade is almost the perfect brokerage for anyone with a passive, buy-and-hold ETF portfolio. No commissions on ETF purchases means you can buy even small blocks of ETF units every two weeks or monthly and not have to pay $10 or $15 commission fees with each purchase. This is a huge advantage to an investor who practices automated investing!
However, I'm past the beginning stages of investing and saving and I do not maintain a buy-and-hold portfolio. There are a few areas where Questrade simply does not compete.
In 2017 I introduced leverage in my investment strategy. The idea was simple. We have no debt, we have an enormous savings rate, my risk tolerance is quite high, and my portfolio strategy is designed to shield our investments from prolonged market downturns.
Based on historical data, I believe the likelihood of my strategy resulting in a 50% drawdown is very low. It's possible if a October 19, 1987 on steroids occurred, but I have protections in place for that type of event.
With leveraged investing there are two main ways to get higher exposure. The first way is by using margin. Margin allows you to buy 2:1 or higher depending on the product. I use ETFs, so for every $1,000 of cash I put into the account, I buy up to $2,000 worth of ETF units.
The second method is by using a leveraged ETF. In Canada, Horizons offers a suite of leveraged ETFs called BetaPro. They are a decent option, but the fees are on the high side and the daily rebalancing aspect can hurt returns. These can be a good choice if you are using trend-based investing in a registered account.
Using margin to buy regular ETFs is the preferred way to get leveraged exposure. While I like Questrade, they tend to hammer you on margin fees. Their current margin interest rate runs near 7%. Though fully tax deductible when used to buy income generating ETFs or stocks, it still takes a hefty bite out of your total return.
Interactive Brokers, on the other hand, is made for sophisticated investors who often employ leverage. Their margin interest cost is under 2.5%! After your tax deduction, you are getting money at less than the rate of inflation. You don't argue with virtually free money!
As noted before, Interactive caters to sophisticated investors. Their system fills orders faster and better than anyone else I know of. They also offer some nice order tools.
Adaptive Orders are the coolest thing I have ever seen and it works amazingly well. Basically, this type of order will quickly fill an order in tranches searching for the best price for each tranche between the Bid and Ask prices, up to your Limit price.
It is great when making large block purchases or sales—the kind that occur from time to time when investing in a Dual Momentum type strategy. It can easily cover the cost of the commission fee and then some.
For example, let's say my margin account has a net value of $300,000. At a 2:1 leverage ratio, this implies I'm holding $600,000 worth of ETFs. If the ETF unit trades at $30/share, a trade will contain 20,000 units! If the Adaptive Order saves me $0.01/unit on the buy side and makes me $0.01/unit on the sale side, that's $400 in saved costs. From my estimation, the benefit can be even higher than this on more thinly traded ETFs.
Although I'm not interested in this in my current investment stage, I believe at some point I will be doing most of my trading on the U.S. stock exchanges. Their ETF fees are lower and they are much more liquid than comparable Canadian-listed ETFs. When my margin account gets up to $1 million and I'm trading up to $2 million worth of a single ETF in one trade, it could be critical to move to a more liquid product.
Questrade charges about 2% of the transaction value to convert to U.S. dollars when purchasing U.S. listed products if your account is currently holding Canadian dollars. You can convert currency cheaper using Norbert's Gambit (the DLR/DLR.U trick). However, you expose yourself to market fluctuations and you have to call Questrade to have your DLR shares journaled over to DLR.U.
Interactive Brokers charges just 0.01% of the transaction value (minimum $2.50) to convert currency. There are no other spread costs, so the fees to change from one base currency to another are virtually free. Also, I can move money easily to virtually any commonly traded currency on the planet and then withdraw from the account as needed.
Unlike many brokerages, including the big bank brokerages, Interactive Brokers is very expat friendly. They might be the premier brokerage for expats around the world and are proud of that fact.
While you might not think this is a big deal, with all the new "anti-terrorism" and money laundering laws floating around many brokerages simply are not willing to offer expat banking anymore. Not being prepared could mean your account gets locked and you having to navigate a myriad of regulatory crap to gain access to your own money.
Living abroad is definitely on our bucket list. Since this may include becoming a non-resident for tax purposes, I will need to liquidate certain assets and put them in a regular investment account. It's nice to plan ahead for this and have an active investment account in place that accommodates expats.
The ability to convert funds to many different currencies at virtually no cost is also important.
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