Margin investing is the activity of borrowing money from a broker in order to invest funds. This increases the overall capital invest. The total investment on margin will include traders own funds plus the borrowed capital. This allows traders to capitalize on certain market events and potentially increase associated profits. Keep in mind that investing on margin can also exacerbate potential losses as traders must pay back whatever they owe their broker.
Robinhood offers Gold account holders the option of investing additional funds via their increased buying power. Each Gold tier enables a trader to borrow a certain amount of money, if one wishes. A Gold account is a Robinhood margin account in short. In short, Robinhood margin trading allows our readers the chance to increase their exposure and provides increased Robinhood day trade opportunities.
How is Margin Interest Calculated?
The Robinhood application will calculate margin interest rates automatically. However, the current pricing is $5 for a 30 day period and includes $1,000 of margin. For margins over $1,000, the interest rate is set at 5%. Keep in mind that the interest rate can change at any point. Robinhood margin trading account holders should be notified if such changes take place though.
The 5% margin interest rate can be applied to margins that vary between $1,000 and $50,000. There’s no need to fear that there are hidden costs involved. Robinhood is transparent in its pricing policy and does not have a habit of implementing unknown costs.
How Do You Buy Stock on Margin?
Buying stock on margin is very straightforward with the latest Robinhood platform. Each account holder is entitled to a certain amount of borrowed funds (margin). Depending on the status of your account, you’ll have x amount which can be used to buy on margin. However, you’ll first use your existing funds to invest before any margin amounts are put into action. To go about buying on margin, follow the same process as you always would. This allows you to use existing margin amounts to invest in your preferred stock. To find out if buying on margin affects your tax allocation, take a look at our coverage of Robinhood taxes.
What is a Margin Call?
When buying on margin, each stock has a margin maintenance. The maintenance amount is based on the volatility of the stock in question. This amount is the minimum portfolio value that should be maintained in case the position of the underlying stocks happen to fall. If a trader’s portfolio value falls below the required margin maintenance, the account holder will be issued a margin call. In this event, a trader will be required to increase their portfolio value and in doing so, exceed the minimum margin maintenance.
If a trader is unable to meet the minimum Robinhood margin requirements, Robinhood will be entitled to sell off underlying stocks in order to meet the Robinhood margin account requirement. In order to avoid a margin call, it’s recommended that you keep an eye on the stocks you’ve bought on margin. This way, it’s possible to sell stocks that might decrease in value or boost your overall portfolio value before receiving a margin call.
Is Buying on Margin a Good Idea?
Buying on margin is a risky endeavour which has the potential to increase your profits substantially. However, as is the case with risky investments, the downside is also compounded in the event that your investment is not successful. It is important to keep this in mind when engaging in margin investing.
Thus, it is clear that buying on margin is not recommended for first-time traders. Nor, is it recommended to those that prefer security over short term gains. Buying on margin is a good idea for those who have the capital to fund potential losses and interest payments in the event that the relevant stock does not perform as expected. It’s important to have in-depth market knowledge and/or large capital reserves when buying on margin.
Robinhood provides traders with the opportunity to engage in Robinhood margin trading with a fairly straightforward policy. The Robinhood margin account fees are in line with industry standards. Is Robinhood margin worth it? At TradersBest.com, we feel that this online broker continues to provide transparent and innovative services to traders. The process whereby traders can attain additional funds is simple and the margin interest rates certainly reasonable. Coupled with a satisfactory Robinhood instant deposit limit, we urge our readers to take a look at this up-and-coming online broker.
Robinhood Margin Rates FAQ
👉 Is the Robinhood margin interest rate high?
Each broker will implement their margin interest rate as they see fit. However, these rates cannot diverge too much. This will only lead traders to take up the services of the online broker that provides the lowest margin interest rate. Small changes might not seem to make much difference. However, if you plan on borrowing a large amount over a period of time, a small difference in the interest rate might make a world of difference. Our coverage will outline the exact nature of the current Robinhood margin interest rate.
💰 How much can I invest on margin?
Online brokers allow traders to invest quite a bit on margin. However, it does depend on the individual’s account plan and balance. Those that tend to deposit and invest small amounts will not be able to leverage large amounts on margin. At BesBrokerReviews.com, we’ll highlight exactly how much can be invested on margin from each broker.
🔔 Are Robinhood margin rates fair?
At TradersBest.com, it is our mission to analyze each and every online broker in an effort to gauge their fairness. We hope to bring you impartial reviews which outline the most trustworthy brokers and their subsequent brokerage services. Stay up to date with us and find out which brokers are providing competitive and fair margin rates to the general public.