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Written by Cari Scribner on November 22, 2020
Category: 
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How Does Robinhood Margin Work For Beginners?

Trading on margin can be risky business because you invest with borrowed money.

If the stock takes a downturn, you will lose not only your own cash but also the money you borrowed from Robinhood.

Conversely, if the stock makes a spike in value, you will see higher returns that if you had just used the cash you had on hand.

It could go either way.

Before trading on margin, it is imperative that you do your own research and understand how it works. Here's the basics of Robinhood margin for beginners.

Before even considering investing on margin, you should give some thought to your:

  • Specific investment goals
  • Tolerance for risk
  • Current financial status

Most people borrow on margin to invest because they think they need extra buying power. Before doing so, check out this article on earning compound interest. You might not need that extra buying power and risk.

What Is Robinhood Gold?

In order to trade on margin, you need to subscribe to Robinhood Gold for $5 a month. This includes your first $1,000 of margin.

Robinhood Gold comes with:

  • Access to margin and the first $1,000 loaned
  • Larger instant deposits
  • Level II market data
  • Morningstar Research Reports

The platform only permits three daily trades in a five-trading day period. However, they allow unlimited trades if you have $25,000 of equity. Robinhood Gold also gives you access to extended hours trading from 9 AM to 6 PM, so you have a few more hours per day to trade than you would with the free service.

What Does Robinhood Gold Cost?

For $5 a month, you get all the Robinhood Gold premium features, and your first $1,000 of margin is included. You will be charged $5 every 30 days at the beginning of your billing cycle.

If you use more than $1,000 of margin, you’ll pay 5% yearly interest on the amount you use above $1,000. Your interest is calculated daily and charged to your account at the end of each billing cycle.

Can I Set Margin Limits?

Yes, you can. Robinhood set up borrowing limits to help you control how much margin you use.

By setting a limit, you can restrict the amount of margin you access to the amount that you feel comfortable using. You can set this limit to any amount, though all limits are subject to regulatory rules on margin, which are based upon the equity in your account.

robinhood gold

How Do I Know How Much Margin I Can Use?

You can track how much margin you can use in the Gold settings screen. The Gold settings screen includes the following values:

  • Total Margin – The total margin that your account can have based on your account equity and the volatility of your holdings.
  • Margin Available – The margin available in your account is based on the minimum of your total margin and your borrowing limit.
  • Margin Used – The portion of your margin available that you are currently using.
  • Borrowing Limit – Your set maximum limit on the amount of money you can borrow.

What Is A Margin Call?

If you get a margin call, you need to bring your account value back up to your minimum margin maintenance amount. If you fail to do this, you are at risk for Robinhood having to liquidate your position(s) to meet the margin call.

Margin calls can happen for several reasons but are mostly due to a decline in the value of your holdings, causing your account value to fall below your margin maintenance.

How Can I Avoid A Margin Call?

Make sure you regularly check the buying power screen or the margin investing section of the Robinhood account settings page.

Look out for updates from Robinhood when you’re getting close to a margin maintenance call. You’ll typically receive an inbox message when you’re close to receiving a margin maintenance call, and an email once you’ve received one.

There are two ways for you to resolve a margin call:

  1. You can deposit additional funds to increase your account value above the margin maintenance. This will allow you to keep your positions.
  2. You can close some of your positions by selling shares. The proceeds from the sales will help cover your margin call. This may allow you to avoid depositing additional funds.

What Is Minimum Margin?

In order to buy stocks on margin, Robinhood will require you to have at least $2,000 or 100% of the security’s purchase price, whichever value is less, deposited into your account. This is called the minimum  margin.

If you will be day trading, you must deposit $25,000 into your account before buying securities.

Final Thoughts

Robinhood Financial is an online broker platform designed to open doors to the financial markets by offering commission-free trades on an easy-to-use mobile app. It does not require any account minimums. They don’t charge any fees when you open an account, transfer funds to it, or for maintaining your account.

Robinhood Gold is a premium feature that lets you buy on margin. However, this is extremely risky, particularly for new investors. You will also have to pay for a gold account. Think carefully about whether or not you need – or can manage – margin trading to reach your money goals.

In order to trade on margin with Robinhood, you need a minimum of $2,000 in your brokerage account. You also need a Gold subscription for $5 per month. This will give you your first $1,000 of margin. Beyond that, you will have to pay 5% interest on any additional funds borrowed. Before borrowing money, consider whether or not you really need margin.

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how does margin work on robinhood?
Article written by Cari Scribner
Cari Scribner is a career journalist with 20 year’s experience writing for newspapers and magazines. Now a freelance writer, she is also a published fiction writer with more than 15 short stories in literary mags. She recently completed a novel that is on the desk for consideration at two publishing houses. She lives with her two small dogs, Miloh and Lucy, in Upstate NY.

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