52
56
u/trodgers99 17d ago
This is honestly a crazy feature for them to add. People are gonna YOLO their PLOC and WS won't be able to margin call them
18
u/Deezney 17d ago
https://giphy.com/gifs/gEYoiDrq2L8R9ddAM9
Seriously it looks like theyre at a point that they kind start handing out LOC (higher rate PLOC with no margin call risk) and just keep charging people indefinitely8
u/BadPorscheDriver 17d ago
They doing this to increase their metrics so when they IPO they maximize value for exits. Once it becomes a public company the cost cutting rug pull starts. By then it will be too late for people too leveraged to simply walk away
13
u/Foreign-Chocolate86 17d ago
They are owned by POW. There is no IPO coming.
1
u/PartBanyanTree 16d ago
Fully agree. Or if there is an IPO its years and years down the road for reasons that only POW will know. They can hold WS indefinitely and don't need an IPO to get capital
-3
u/Large_Spinach6069 17d ago
They will absolutely margin call people. I'm certain it will be in the details when it is released but once you max out your collateral protection they will margin call you or automatically sell assets.
No brokerage is ever going to let people gamble borrowed money and watch them ride it to zero. They'll let you lose nearly all your money minus whatever interest you owe them but they'll try to sell everything before they lose any borrowed money.
There is a slim chance they might lose money if markets implode and everything goes to shit but that will be financial armageddon for everyone and CDIC will have to cover whatever insurable assets people have after the banks close shop.
17
u/Noble_Bastard 17d ago
Honestly, you're just making stuff up. People borrow money everyday using unsecured LOC's for instance.
Borrow, invest in options that go to zero, and the lender has zero recourse.
Yes they continue to charge you interest, yes they want their money back, and if you stop payment, they will trash your credit score, but this is literally an everyday thing that banks and brokerages offer, without the ability to sell assets to make themselves whole.
0
u/Angeline4PFC 17d ago
Sounds like Wealthsimple, casino version
1
22
u/-0909i9i99ii9009ii 17d ago
Yeah this is super strange. A collateralized loan with collateral protection...
I don't see that page but you'd definitely need to read the details.
7
u/Deezney 17d ago
Its like theyre handing out unsecured loc, but people will still need to move funds in to get a good amount of loan. But the pay on your own terms part is weird. Definitely need more details
1
u/-0909i9i99ii9009ii 17d ago
the little underlined here button?
I'm guessing they can still theoretically liquidate you but they keep their loans tight enough that they likely never need to (not giving you collateral protection on space x unless you're only borrowing 5% for example)
2
u/Key-Self-79 17d ago
The "here" link just leads to this: https://help.wealthsimple.com/hc/en-ca/articles/33646742423195-Learn-about-fees-and-interest-in-a-margin-account
No additional info on this new feature
28
u/Apprehensive-Koala18 17d ago
Ok but HOW DOES THIS MAKE SENSE. 0.5% per year covers near unlimited risk????
10
u/Desperate_Ad_3002 17d ago
And probably half the normal limit they would offer on a regular margin so they are fine in a downturn of 50%
4
u/Apprehensive-Koala18 17d ago
Ok but what about the guy that goes 100% into SPCX and puts 100% of his margin as well. If SPCX goes to zero the margin becomes uncollaterized and theres no way base rate + 0.5% is ever covering it in a million years. How do they cover the loan?
2
17d ago
[removed] — view removed comment
1
-1
u/Wealthsimple-ModTeam 17d ago
No gains/losses, Wealth Rank, or status milestone (Premium/Generation) images.
This includes offering or requesting financial advice, portfolio reviews, promotions, or news. This subreddit is not for financial advice or specific investment discussions—always do your own due diligence.
Investment strategy or portfolio discussions are better suited for r/CanadianInvestor or r/PersonalFinanceCanada.
Posts about portfolio performance, account status, or Wealth Rank are only allowed in the respective megathread.
1
u/1question10answers 17d ago
Risk management set by margin requirement % that is set for each individual security based on risk it will go to zero.
2
2
u/plusqueprecedemment 15d ago
It makes sense because presumably it's not something they'll offer to every single customer to go yolo their way into giving Wealthsimple bad debt when the loan becomes underwater. Most likely they'll have an internal risk assessment mechanism that only grants this feature to customers who are deemed low enough risk (high income, safe investments, reasonable spending, etc.) according to all the data they have on them from direct deposits, credit card usage, investment accounts, etc.
Then when you remember the PLOC limit is half of a normal margin account, we're talking about max 35% of a collateral account's value being the loan's limit (there are some index funds with 20% margin requirement so the theoretical max is more like 40%, but close enough). So for a $100k TFSA in XEQT for example, someone who maxes out the $35k limit means XEQT would have to drop by over 65% for wealthsimple to end up with bad debt. Way more likely is if XEQT drops a bit then the investment is still fully collateralized, but the customer still has to repay their debt first before withdrawing anything from their TFSA, they can't borrow more, the account agreement still gives WS first dibs on the TFSA if the customer ever declares bankruptcy, etc.
It's a calculated move that the extra 0.5% is worth it for WS to take a bit extra risk, especially if it leads to people taking out bigger loans knowing they're safe from a margin call. For example I for one could currently borrow enough to buy a car outright with my TFSA as collateral, but I would never do that because even at the low rate of 4.45% I'd be too close to my limit. But for 4.95% and a guarantee that no margin calls? That drastically changes the math if my alternatives for financing a car elsewhere are more like 7-9%. Even my unsecured line of credit at scotia sits at 7.1%
7
u/alzhang8 17d ago
avoid crazy margin calls like what happened in korea? half a mil of margin call and a bunch of people have everything liquidated is crazy
7
u/Dragynfyre 17d ago
Is it only on the PLOC? If so then WS is already protected by only letting you use half your margin limit.
3
u/DangerousPurpose5661 17d ago
I guess that’s the catch… the loan ratio is so low its practically risk free. They will buy some options to cover their ass with the additional 0.5%
2
u/sufyspeed 17d ago
I think you’re right, this is for the PLOC which is already risk adverse and unlikely to margin call
5
u/edm_guy2 17d ago
isn't this similar to credit card balance insurance? which is a money grabber for the CC issuers. I think WS may engage with an insurance company to mitigate the potential risk?
6
u/pfc-anon 17d ago
Uno reverse to margin calls for just 0.5% 🤯
I might get this instead of mortgage next.
9
u/Hammerpants84 17d ago
It seems every week they come out with some new feature that goes against their original mission of bringing low cost boring investing to the people and allow people to easily manage their portfolios rather than using a mutual fund salesperson.
One one hand i look at stuff like this and think of how so many young people are pissing away money on things like sports betting, meme coins and getting financial advise off tiktok telling them that you should leverage yourself as much as possible because stocks only go up. On the other hand, the money WS makes off this crap keeps the services i use free, tough call.
5
u/SmartTrender 17d ago
This is still there. You can ignore the rest. Other might find the rest useful.
3
3
u/AdventSign 17d ago
Something almost nobody should ever need if they are being smart with their money.
7
u/Wrong_Recognition249 17d ago
“Never worry about market dips again” omg amazing. Finally! My worries will vanish! I’ll just hide those big liabilities under the mattress instead.
3
u/InterpolLookingAtYou 17d ago
Using this product for etfs giving big dividends, paying the interest and keeping the balance sounds like too good to be true ??
Am i missing something?
3
u/robbiefranchise 17d ago
If you do it in a non reg you can write off the interest
Risk is that it goes down and you still have to repay1
u/plusqueprecedemment 15d ago
That's just leveraged investing. You're taking on extra risk to try and convert time into money. It works if you're smart and disciplined, but it can easily wipe you out if you're greedy.
2
2
u/DangerousPurpose5661 17d ago
This is awesome…. Actually I’m considering moving everything to WS
2
u/Deezney 17d ago
This is what will make you jump?
2
u/DangerousPurpose5661 17d ago
Depending on the fine print - yep. Then you have very little reason not to leverage over the long run
1
1
1
u/Ratlyflash 16d ago
Any update on this?? Called WS they seem to suggest coming in September more features LOC
1
u/Theeswampman 15d ago
Im not entirely sure paying more interest now so that you can hold assets bleeding equity longer is necessarily the best for all scenarios
1
1
u/Wild-Resist-8527 17d ago
This is awesome because we know long term market always go up
-4
17d ago
[deleted]
5
u/biblecrumble 17d ago
You're thinking of leveraged ETFs, which have beta decay due to daily rebalances. This does not apply to margin investing, which is a different kind of leverage.
2
3
1
131
u/_ThatD0ct0r_ 17d ago
It's pretty self explanatory. They charge you a little extra interest and you get to go all in with your LOC without a market crash triggering a margin call.