What You Need to Know About Robinhood Margin Trading

Robinhood’s margin maintenance requirements are based on factors such as stock volatility and market liquidity.

Ruchi Gupta - Author

Dec. 28 2020, Published 11:14 a.m. ET

robinhood margin requirements
Source: Robinhood FACEBOOK

Robinhood offers several account types with varying features. Robinhood Gold account investors have access to margin trading. This allows investors to borrow money from Robinhood to purchase more stocks than they would with their own money. Many investors use margin to try to maximize their profits. If you’re considering borrowing money from Robinhood toward investing, you should know Robinhood’s margin requirements. 

Article continues below advertisement
Article continues below advertisement

Investors with Robinhood Gold accounts pay a monthly subscription fee of $5. At this level, users gain access to a professional research report to help them decide which stocks to buy or sell and up to $1,000 interest-free margin. Moreover, they can make large instant deposits of up to $50,000.

chart _
Source: Robinhood PIXABAY
Article continues below advertisement

What is Robinhood’s margin maintenance requirement?

Robinhood requires investors to have at least $2,000 in portfolio value before they can access margin for trading. But investors designated as pattern day traders must have $25,000 in portfolio value to access margin. The online broker charges 2.5 percent annual interest on margins. The platform used to charge 5 percent interest but halved the amount to entice more investors to purchase a premium Gold account. The interest applies to amounts above $1,000 and is calculated daily. 

Article continues below advertisement
Article continues below advertisement

Margin maintenance is the minimum portfolio value Robinhood requires you to have to avoid a margin call. For instance, if you have $10,000 in Tesla stock bought on margin, Robinhood may set the margin maintenance requirement at 25 percent. It means you’ll need at least $2,500 in account equity to avoid a margin call. 

Robinhood looks at factors like a stock’s volatility and market liquidity to determine margin maintenance requirement. Essentially, more volatile stocks will have higher margin maintenance requirements. Robinhood keeps adjusting its margin maintenance requirements based on the volatility and liquidity factors. Therefore, you may start with a margin maintenance requirement of 25 percent on a stock and see it increase to 35 percent.

Article continues below advertisement

What is a margin call?

A margin call occurs when the value of your portfolio falls below the margin maintenance requirement. If you get a margin call, you can resolve it by depositing additional funds in your account.

Article continues below advertisement

If you can’t deposit more funds in your account, you can resolve a margin call by selling some stocks to boost the portfolio value. Robinhood can liquidate your position if you continue to ignore its margin calls.

Article continues below advertisement

Why can’t I use my margin on Robinhood?

Robinhood margin starts applying once you have depleted the cash in your account, so you won’t start accessing margin if you still have a positive cash balance. Say you have $500 in cash and have access to a margin of $1,000. If you purchase $500 of stock, the cash will be used first. If you make another stock purchase of $700, now that will come from the margin. 

Article continues below advertisement
Article continues below advertisement

Is margin on Robinhood worth it?

Trading with margin can be a smart way to increase your profits in the stock market, especially if you have little capital. Robinhood’s $1,000 interest-free margin can help you boost a trade while keeping investment costs low. You can access larger margins with Robinhood as your account expands. Finally, Robinhood’s 2.5 percent interest on margin is among the most competitive in the market. 

Of course, Robinhood Gold account perks go beyond margin. You can also make smarter investment decisions with research reports from Morningstar experts and level 2 quotes. 


Latest Financials News and Updates

    Opt-out of personalized ads

    © Copyright 2024 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.