robinhood margin requirements
Source: Robinhood FACEBOOK

What You Need to Know About Robinhood Margin Trading

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

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. 

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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.

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Source: Robinhood PIXABAY
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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. 

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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.

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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.

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.

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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. 

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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. 

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