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Written by Cari Scribner on December 20, 2021
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How Does Robinhood Margin Work For Beginners?

Trading on margin can be risky business because you are investing 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.

On the other hand, if the stock sees an increase in value, you can see higher returns than 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 are the basics of Robinhood margin for beginners.

But before even considering investing on margin, you should give some thought to the following:

  • 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.

If you prefer watching instead, check out our video on Robinhood Margin below!

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What Is Robinhood Gold?

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

Robinhood Gold comes with:

  • Access to margin investing
  • Larger instant deposits
  • Level II market data
  • Morningstar Research Reports

Even if you have Robinhood Gold, the platform only permits three daily trades in a five-trading day period. However, this restriction is lifted if you have $25,000 of equity in your account. 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.

Robinhood Free Training

We put together a free 30 minute video training that walks you through the entire process, step by step. This training will help you get up and running in no time at all.

GET THE GUIDE

What is a Pattern Day Trader?

Because day trading is considered riskier, it is more closely monitored. Under FINRA regulation, a pattern day trader is anyone who makes more than 4-day trades in a rolling 5 day period. Anyone who executes this number of day trades will be automatically flagged by their brokerage as a Pattern Day Trader.

This person is required to hold a minimum account balance of $25,000. If the balance is less than $25,000, the individual will not be able to execute more day trades until the balance comes back up.

A day trade is simply buying and selling the same security within the same day. Purchasing multiple securities in a day is not considered a day trade.

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 2.5% 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 allows you to 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 there are a number of regulatory rules on margin that will limit the amount of margin Robinhood is able to give you.

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.

How Much Does Robinhood Margin Cost?

In order to access margin on Robinhood, you'll first need that $5 per month Robinhood Gold subscription.

On top of this initial cost, you will pay interest on the amount you borrow from Robinhood. The current interest rate for Robinhood margin is a flat 2.5%. This is calculated on a daily basis and charged monthly.

So when that $5 Robinhood Gold subscription payment rolls around, they will also tack on the interest you owe for the last month.

Your first $1,000 worth of margin is included in the $5 per month you pay for Robinhood Gold. So for example, if you borrow $2,500 of margin from Robinhood in a month, you will only pay interest on $1,500.

Compared to Webull margin and many of the other options out there, Robinhood's pricing is quite reasonable.

What Is A Margin Call?

If your stocks decline too far in value, Robinhood starts to worry about your ability to pay them back. As a result, they will issue a margin call and require you to either add more of your own money to the position or sell it and pay them back.

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 liquidating 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 requirement.

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.

If you think you may be approaching a margin call, it might be a wise idea to cut it off before it happens.

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.

This is intended to protect Robinhood and ensure that you have enough skin in the game.

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

Is Robinhood Margin Worth It?

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 cover 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.

Article written by Cari Scribner

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