Margin is money Robinhood lends you to buy stocks or other securities

When you use margin on Robinhood, you are borrowing cash from the platform to make trades. Instead of using only the money in your account, you can borrow additional funds up to a set limit and use that borrowed money to purchase stocks, ETFs, options, or crypto. Robinhood charges you interest on the amount you borrow, and you must repay it.

Margin is not automatic. You have to open a margin account separately from a standard cash account, and Robinhood sets requirements for who can use it. The amount you can borrow depends on your account balance and the type of security you are buying.

Key Takeaways

  • Margin lets you borrow money from Robinhood to trade, but you pay interest on the borrowed amount and must repay it.
  • You need a margin account (not a cash account) to borrow, and Robinhood requires a minimum account balance and approval before you can use margin.
  • The amount you can borrow is limited by Robinhood's margin requirements, which vary by security type and market conditions.
  • If your account value drops and you fall below the maintenance margin requirement, Robinhood can force-sell your positions to cover the debt.
  • Margin amplifies both gains and losses — borrowing to buy $10,000 worth of stock when you have $5,000 means you lose twice as fast if the price falls.

How much can you borrow on Robinhood

Robinhood sets a buying power limit based on your account balance. If you have $5,000 in your account, Robinhood may allow you to borrow up to $5,000 more, giving you $10,000 in total buying power. The exact amount depends on what you are buying. Stocks typically allow you to borrow up to 50 percent of the purchase price (called the initial margin requirement). Some securities, like penny stocks or volatile stocks, have stricter limits.

Robinhood also enforces a maintenance margin requirement, which is the minimum account value you must keep at all times. If your account drops below this level, Robinhood will issue a margin call and may force-sell your positions to bring your account back into compliance. The maintenance requirement is usually 30 percent of the total value of your positions.

These limits can change based on market volatility or regulatory changes. You can see your current buying power and margin limits in the Robinhood app under Account settings.

Interest rates and fees on borrowed money

Robinhood charges margin interest on the money you borrow. The interest rate varies depending on how much you borrow and your account balance. Larger balances sometimes receive lower rates. Interest accrues daily and is charged to your account monthly.

You can see your current margin interest rate in the app. The rate is not fixed and can change. Robinhood publishes its margin rates publicly, and they typically range from around 5 percent to 11 percent annually, though this varies by market conditions and your account tier.

Unlike some brokers, Robinhood does not charge a separate margin account fee. You only pay interest on the amount you actually borrow.

What happens if your account value falls

If the value of your holdings drops and your account falls below the maintenance margin requirement, Robinhood will send you a margin call. This is a notice that you must deposit cash or sell positions to bring your account back above the maintenance level.

If you do not respond to a margin call within a set timeframe (usually a few business days), Robinhood can force-sell your positions without your permission to cover the debt. This is called a forced liquidation or margin liquidation. Robinhood will sell your most liquid positions first (easiest to sell quickly) to raise cash, which may not be the positions you would have chosen to sell.

Forced liquidations can lock in losses and trigger tax consequences. If you sell at a loss, you may owe capital gains taxes on the transaction, and if you sell winners to cover the margin call, you may owe taxes on those gains.

How margin amplifies gains and losses

Margin magnifies the effect of price movements in both directions. If you borrow $5,000 to add to your own $5,000 and buy $10,000 worth of a stock that rises 20 percent, your $10,000 position is now worth $12,000. Your $5,000 investment turned into $7,000 (a 40 percent gain), minus interest paid on the borrowed $5,000.

The reverse is also true. If that same stock falls 20 percent, your $10,000 position is now worth $8,000. Your $5,000 investment is now worth $3,000 (a 40 percent loss), and you still owe the $5,000 plus interest. A 20 percent drop in the stock price can wipe out half your account.

This is why margin is considered high-risk. You can lose more than your initial investment if prices move against you sharply enough.

Margin account requirements on Robinhood

To open a margin account on Robinhood, you must meet certain requirements. You need a minimum account balance (Robinhood's requirement is typically $2,000, though this may vary). You must also be at least 18 years old and a U.S. resident.

Robinhood will ask you to agree to the margin agreement, which outlines the terms of borrowing, interest rates, and what happens if you fall below maintenance requirements. You can request a margin account through the app under Account settings, and Robinhood will review your request.

Not all account types are may be able to access for margin. Retirement accounts (IRAs) and some other account types cannot use margin on Robinhood.

Alternatives to margin if you want more buying power

If you want to trade with more money than you have but are hesitant about margin, you have other options. You can save and deposit more cash into your account. You can also use options strategies (though these carry their own risks) or trade smaller positions with the money you have.

Some traders use a cash account instead and wait for trades to settle before using the proceeds to buy again. This takes longer but avoids margin interest and the risk of forced liquidation. Robinhood allows you to switch from a margin account back to a cash account, though there may be restrictions if you have an outstanding margin balance.

Frequently Asked Questions

Can I lose more money than I put in with margin?

Yes. If you borrow $5,000 and the stock you buy drops significantly, your $5,000 investment can go to zero and you still owe the $5,000 plus interest. In extreme cases, you could owe more than your initial deposit. Robinhood's forced liquidation rules limit this risk, but it is still possible in fast-moving markets.

What is the difference between initial margin and maintenance margin?

Initial margin is the amount you must put down to buy a security (usually 50 percent for stocks). Maintenance margin is the minimum account value you must keep at all times (usually 30 percent). If your account drops below maintenance, you get a margin call.

How long do I have to respond to a margin call?

Robinhood typically gives you a few business days to deposit cash or sell positions to meet the maintenance requirement. If you do not act, Robinhood can force-sell your positions without notice. Check your account notifications for the exact deadline.

Does Robinhood charge fees to open a margin account?

No. Robinhood does not charge a fee to open or maintain a margin account. You only pay interest on the money you borrow.

Can I use margin to buy crypto on Robinhood?

Robinhood does not allow margin purchases of crypto. You can only buy crypto with cash in your account. Margin is available for stocks, ETFs, and options.