(June 19, 2012: A good chunk of this article is out-dated and will not be updated. Specifically they have changed their trading platform to emulate Interactive Broker’s TWS and apparently have increased their margin interest rates. The security concerns remain prevalent, although they do now ask a “security question” before logging in.)
(Article updated January 4, 2011 to update margin rates and put in a current rate of interest.)
(Readers may also be interested in reading A Questrade Failure [January 4, 2011], and Watch out for Questrade – Check those statements [February 16, 2011].)
I reviewed Interactive Brokers previously; I use them for my non-registered investments. For my RRSP and TFSA, and for TSX-traded debentures, I use Questrade.
Questrade
I transferred in my RRSP to Questrade in early 2008 from BMO Investorline. The primary attracting feature was the ability to retain US dollars in the account and not having to incur currency exchange fees whenever you transacted in US securities. Just as an example, ignoring commissions, if you bought USD$1000 of something, and then sold it the next day, you would probably pay around $40 of implied currency conversion charges at BMO Investorline. With Questrade, this is nothing, assuming you had the US currency in the account to begin with.
If you bought USD$10,000 of something and sold it the next day, your typical currency conversion charges (going from CAD to USD and USD to CAD) would be around $400 – with Questrade, it is nothing. For anybody transacting in US dollar securities in their RSP, it is an essential feature.
The RSP transfer took about a month. It also took them another couple months to refund the RSP transfer fee, but they explained this up-front.
The web-based interface for Questrade is very simple – it is missing a basic feature of “how much will this entire transaction cost” whenever previewing an order, but other than this, it is OK. The problem is mitigated by using a desktop calculator. They provide a better platform for active traders, but I have never used it and probably never will. They provide three separate logins for account information and trading, but once you’ve bookmarked them, it is surprisingly easy to get detailed access to your information. In particular, their clearing is performed via the Pension Financial Corporation, and the historical account information they provide through this interface is comprehensive. I can easily see how people that are not as “in-tune” with web navigation would find this system very confusing.
Costs at Questrade are very cheap – basically a trade costs $1 per 100 shares, minimum of $5, maximum of $10. They are also the cheapest Canadian broker to trade TSX-traded debentures – basically the standard commission charges (as if you were trading stocks) applies – so it would be about $10/trade. Most other brokerages charge around $40 per trade, plus $1.50 per $1000 par value – which could make trades very expensive. Questrade does not charge any inactivity fees or any other “garbage” fees, but something people should be aware of are fees for taking liquidity away from the market (i.e. buying at the ask, or selling at the bid) which would amount to material sums if you are dealing with penny stocks.
Questrade’s margin rates currently (as of January 4, 2011) are 4.5% for Canadian dollars, which is prime plus 1.5%. They generally are in line with other “big name” brokerages (e.g. BMO Investorline is at 4.25% or prime plus 1.25%), but both do not come close to Interactive Brokers.
I have no problems with Questrade customer support – they have an online web-chat interface and sometimes it takes awhile to get a customer support agent, but once you do get on with them, they are fairly responsive. I suspect most of the people that have complained about Questrade (and there are a lot of financial forums that have supremely negative reviews on them) didn’t have a clue what they were doing (e.g. dealing with Canadian vs. US dollar securities, or wondering why their shares got sold out when they had a margin call).
Deposits and withdrawals are simple – provide the EFT information, and a few button clicks is what it takes to fund accounts or withdraw funds from accounts. The withdraws typically take three business days to process, and I have always received my funds promptly.
For a simple buy-and-hold investor, Questrade seems to be a decent and low-cost provider. They aren’t going to win any awards for any of the other ancillary services brokerages provide (research, fancy interface, hand-holding customers), but if you don’t care about those, they serve the job very adequately for RRSP and TFSA accounts. I have no idea how they are for active traders.
Questrade’s inadequate security
The reason why I can’t give a blanket endorsement of Questrade is security – they do not offer any sort of guarantee (e.g. BMO Investorline’s Online Security Guarantee) against hackers, and unlike Interactive Brokers, if somebody managed to rip off your username and password, they can do a lot of financial damage to your account. This is my biggest concern with Questrade, and it is a sufficiently high concern that I wish they would offer some sort of guarantee against hacked accounts, and/or provide an account authentication system that is similar to Interactive Brokers. In addition, Questrade is privately held and as a result, one has no idea how financially solvent they are. Although Canadian investors are protected through CIPF, you do not want to have to reclaim your assets through this mechanism.
The reader might wonder why I am concerned about an issue that has not materialized for me – I am very cognizant of potential risks. I do not want to have to suffer through a security incident before taking measures that will protect me. I do not believe Questrade takes security seriously enough beyond the typical lip service of telling its customers to “run a firewall and a virus scanner” and as a result, some of its customers will have their accounts compromised. Although I am very computer-savvy and it is unlikely that a phishing scam will get my username and password, it could happen and I want a form of protection beyond a username/password combination to make sure that my account is protected. Questrade does not offer this.
Until they provide better provisions with respect to account security and provide some more transparency on their own financial solvency, I only will give them a tepid recommendation. The only reason why I use them is they support RRSP/TFSAs well and they allow inexpensive trades on TSX-traded debentures. If they beefed up their security, I would rate them much more highly than present. I just don’t get that warm and fuzzy secure feeling that I do with Interactive Brokers.
Unlike practically all other financial blogs out there, I won’t insult you (the reader) by offering some referral scheme, which they do offer – I do these reviews without remuneration.