Are you looking for a margin account that has low requirements? If so, Robinhood may be the perfect option for you.
Robinhood has some of the lowest margin requirements in the industry, making it a great choice for investors who are just starting out.
Keep reading to learn more about how Robinhood’s margin requirements compare to those of other brokers and find out if this is the right account for you.
What Do You Mean By “Margin Requirements” Robinhood?
Margin requirements, or “leverage ratios,” are the ratio of the cash securing a position to the value of that position.
Margin requirements are the amount of cash a trader must have in his account before he starts trading with leverage.
A trader can estimate his margin requirements by multiplying the desired trade size with the leverage of that particular currency pair.
Robinhood’s required margin is 30%.
What does this mean?
30% of your account’s current market value must be held in cash at all times when you have short positions.
How Does This Compare to Other Brokers?
Robinhood requires more margin than Capital One Investing but less than Merrill Edge and Charles Schwab.
What is the Initial Margin Requirement?
The initial margin requirement is the sum of all the positions’ required margins below 30%. For example, if you open a position that has an initial margin requirement of 24% and another one with an initial margin requirement of 39%, your total initial margin requirement would be 8%; it would be 24% + 39% = total of 63%; 30% would be the margin maintenance requirement.
What Happens if I Violate a Margin Requirement?
If you violate a margin requirement, Robinhood will attempt to liquidate any positions in your account below the 30% threshold to bring you back above it.
How Are Margin Requirements Calculated In Robinhood?
Margin requirements are calculated using the midpoint price of all the available market data at that time, between 12 am-6 am Eastern Time.
For example, if you place an order around midnight Eastern Time that would put your account into a deficit (putting you below 30% required margin), it will not be executed until 6 am ET when the markets are live again.
The position can now be filled at market prices with sufficient funds in your account to meet the minimum requirement.
Why Does Robinhood Have Higher Margin Requirements Than Other Brokers?
The reason behind the high margin requirements in Robinhood comparison to other brokers is to encourage retail investors to invest responsibly by only risking what they can afford to lose.
Also Read: Why Can’t I Trade Options on Robinhood?
Robinhood Margin Requirement
Less Than 30% Maintenance Requirement
This range requires no additional margin above and beyond the standard required margin because your positions shouldn’t be going into a deficit at this range.
30% – 40% Maintenance Requirement
This range increases the margin requirement by ten percentage points. This means that you can safely trade in this range with just your standard required margin, but if the market moves against you and requires a maintenance call, leverage will increase accordingly.
Greater Than 40% Maintenance Requirement
This range increases the margin requirement by 20 percentage points. This means that you can safely trade in this range with just your standard required margin, but if the market moves against you and requires a maintenance call, leverage will increase accordingly.
Can I Use Margin To Purchase On Margin In Robinhood?
Yes. Margin can be used to purchase on margin, also known as buying stocks “on margin”. Buying stocks on margin means borrowing money from your broker to buy more stock than you can afford with your own cash.
You can think of buying stock on margin like using a credit card to make a large purchase that you might not otherwise be able to afford by yourself.
When you buy stocks on margin, the money that you are borrowing comes from your broker, just like if you were to use a credit card. Remember though, instead of paying back a credit card company, you will pay interest to your broker.
How To Get Margin On Robinhood?
You can get margin on Robinhood by depositing cash to your account, which you can then use to buy stocks. Margin is a privilege that not all investors will have access to, and it requires a minimum balance in your account as well as meeting the broker’s specific requirements.
In addition, if you do have margin available to you, you may be subject to a maintenance call. A maintenance call occurs when the value of your available margin falls below the minimum required amount for your specific account tier.
For example, if you are in an IRA, have $100k in cash, but are limited to purchasing margin up to $75k because that is the maximum allowable cash balance in your account, you would be subject to a maintenance call.
Suppose the value of your available margin falls below $75k at any point during the day due to market fluctuations.
In that case, you will receive a maintenance call alerting you that it is time to deposit more cash or sell some stocks so that there is enough money in your account to meet the minimum requirements.
If you fail to meet a maintenance call, your positions will be liquidated and the money made from the sale of those positions will go towards paying off your debt before it is passed on to a debt collection agency.
Steps to Get Margin on Robinhood:
- Open the Robinhood app on your phone.
- On the lower right, tap the person symbol.
- In the upper right corner, tap the three-line menu symbol.
- Choose the yellow symbol in the upper right corner.
- Choose “Margin Investing” from the drop-down menu.
- Choose “Turn on Margin”
- Wait for the app to complete its eligibility check.
- Choose “Confirm.”
Also Read: How to Withdraw Buying Power from Robinhood?
How To Use Margin On Robinhood?
Margin can be used to make investments in the same way you would with cash. After all, the margin is basically a fancy term for borrowing money from your brokerage company to purchase additional stocks.
On Robinhood’s platform, it’s easy to see if you have an available margin or not because it will be shown next to your cash balance under the “Available” label.
Using margin doesn’t mean your account is invested in both stocks and cash. Your Robinhood Cash Account only holds cash, so you would have to make a deposit into your brokerage account before you can purchase stock with margin.
How Do You Qualify For Margin Robinhood?
There are a number of factors that go into determining if you qualify for margin on Robinhood. In addition to meeting the minimum account requirements, your buying power will be limited by the amount of cash you have deposited in your account and any maintenance calls that you have already received during the trading day.
In order to determine your buying power with margin, multiply the current cash value of your account by 50%. For example, if your available cash balance in an account is $5,000, the buying power on margin would be limited to $2,500.
In addition to meeting the minimum requirements and having sufficient cash in your account, you must also meet the broker’s specific margin requirements. In order to make a trade using margin on Robinhood, your cash account must have a minimum balance of $2,000.
Is Robinhood Margin Safe?
Yes. Margin trading with Robinhood is as safe as you want it to be. You alone are responsible for determining how much margin to use when buying stocks and for setting your own buying power limits.
Can You Be Charged Interest On Robinhood Margin?
Yes. If you have a margin balance in your account, you will be charged daily interest on it as well as be subject to maintenance calls if the value falls below the minimum requirement.
Note that having a margin balance does not automatically mean you are charged interest. If the value of your available margin falls below the minimum required amount for your specific account tier, you will be charged interest on it.
You will also be subject to maintenance calls if the value of your available margin falls below the minimum required amount at any point during the day.
Also Read: Does Robinhood Affect Credit Score?
How Can You Avoid Interest Charges On Robinhood Margin?
You can avoid being charged interest by depositing additional cash to your account, setting your own buying power limits, or ensuring that the value of your available margin never falls below the minimum required amount for your specific account tier. Alternatively, you could choose to not use margin on your account.
Why Can’t I Use My Margin On Robinhood?
One of the main reasons why one might experience problems while using Robinhood’s margin is that you have not met the minimum requirements. In order to make a trade using margin on Robinhood, your cash account must have a minimum balance of $2,000.
Another possibility is that your available buying power has already been reduced below the amount necessary to meet the minimum requirement because of a maintenance call you received during the day.
If this is the case, you may experience problems when using margin in your account until the value of your available buying power increases or you meet the minimum requirements for making a trade on margin .
Once you have covered the minimum requirements and can make a trade using margin, you can start using your margin immediately. There are no additional steps required when you want to use margin in your Robinhood account.
How Much Margin Can I Get From Robinhood?
The maximum amount of margin you can access on Robinhood will be limited based on your specific account tier.
You can see the current buying power limitations for your specific account tier by viewing your Margin Rate.
Note that this is not the maximum amount of margin you can use but rather how much buying power is allowed for each $1,000 invested in the margin.
Will I Be Charged Interest On My Margin Balance If The Value Falls Below The Minimum Requirement In Robinhood?
Yes, you will be charged interest even when your margin balance falls below your required minimum. This is because a maintenance call was initiated when the value of your available buying power fell below this threshold.
If you notice that the value of your available margin has fallen below the minimum required amount, you should deposit additional cash to your account or ensure that the value of your margin balance never falls below this threshold.
Also Read: Why Does Robinhood Need My SSN?
How Can I Avoid Interest Charges On Margin In Robinhood?
You can avoid being charged interest by depositing additional cash to your account, setting your own buying power limits, or ensuring that the value of your available margin never falls below the minimum required amount for your specific account tier. Alternatively, you could choose to not use margin on your account.
What Happens If You Can’t Pay A Margin Call In Robinhood?
If you are unable to pay the margin call fees, your position will automatically be liquidated. This means that all the assets in your account will be sold off to cover the amount of money that is owed.
In cases where the available margin falls below the required minimum, you will not be able to access the margin in your account until any outstanding fees have been paid.
Does Margin Account Affect Credit Score?
Not directly. The use of margin on your account does not directly affect your credit score, but it can have an impact if you fail to meet the minimum requirements. This is because a maintenance call is initiated when the value of your available buying power falls below this threshold.
If you notice that the value of your available margin has fallen below the minimum required amount, make sure to deposit additional cash into your account or ensure that the value of your margin balance never falls below this threshold.
Does Robinhood Do A Credit Check For Margin?
Yes, in order to qualify for margin in your account, you will need to pass a standard credit check. If you fail the standard credit check, this does not mean that you won’t be able to use your margin on Robinhood but rather that the amount of money available for margin trading may be limited.
Minimum Purchase Value On Margin In Robinhood
The minimum amount you can purchase using your available margin will be based on the particular security being traded.
Some stocks have a lower minimum purchase value, while others may have a higher one. It’s also possible to view the specific dollar amount required for each of your securities by hovering over the blue number in your individual security’s quote window.
How Do You Avoid Margin Trading?
To avoid margin trading, you need to make sure that the amount of money in your account is greater than or equal to the amount of money being used for margin buying.
This can be done by transferring additional cash into your account, setting a higher buying power limit, or ensuring that the value of your available margin never falls below the minimum required amount for your specific account tier. Alternatively, you could choose to not use margin on your account.
Also Read: Why Robinhood is Bad?
Conclusion
In conclusion, a margin account requires a credit check to access. If you pass the standard credit check, you can use your available margin to purchase stocks that have a minimum value requirement.
You should note that if the value of your available margin falls below this threshold, it will trigger a maintenance call and liquidation process as well as additional interest charges.
By using your available margin to purchase stocks you can choose the trade size that fits your budget. You can add or withdraw additional cash from your account at any time, which could prevent maintenance calls and liquidation of your portfolio.
In addition, if you have a specific buying power limit set for your account, it’s important to remember that the value of your available margin must be greater than or equal to this threshold for your account to remain active.
If it falls below the limit, your margin buying capabilities will be temporarily disabled until you address the issue.
