A margin account lets you borrow money from Robinhood to buy stocks, using your existing holdings as collateral

A margin account is a brokerage account where Robinhood lends you cash to purchase securities. Instead of trading only with money you deposit, you can borrow up to a certain amount based on the value of stocks you already own. The borrowed amount is called your margin, and you pay interest on it until you repay the loan.

When you open a standard Robinhood account, you start with a cash account — you can only buy and sell using your own money. A margin account requires a separate application within the Robinhood app. Robinhood sets a minimum account value of $2,000 before you can use margin, and the amount you can borrow depends on your account balance and the types of stocks you hold.

The core mechanic is straightforward: you own 100 shares worth $5,000, Robinhood lends you $2,500, and you use that $2,500 to buy more shares. If those new shares rise in value, your gains are larger than they would have been with only your own cash. If they fall, your losses are also larger — and you still owe back the $2,500 plus interest.

Key Takeaways

  • A margin account requires a minimum account balance of $2,000 and must be opened separately from a cash account within the Robinhood app.
  • Robinhood charges interest on borrowed money, and the rate varies based on how much you borrow and market conditions.
  • If your account value drops below Robinhood's maintenance requirement, you face a margin call and must deposit cash or sell holdings to bring the account back into compliance.
  • Margin amplifies both gains and losses, so a 10 percent drop in stock value can wipe out a much larger percentage of your actual money.
  • Certain stocks and securities cannot be purchased on margin, and short selling on margin has additional rules and costs.

How much you can borrow and what it costs

Robinhood allows you to borrow up to 50 percent of your account value for most stocks — meaning if you have $4,000, you can borrow up to $2,000. This ratio is set by federal regulation (called Regulation T) and applies across all brokers, not just Robinhood. Some stocks, particularly penny stocks and newly listed companies, cannot be purchased on margin at all, and Robinhood will block the transaction if you try.

The interest rate Robinhood charges on margin loans is not fixed. It ranges based on how much you borrow and changes periodically. As of recent updates, rates typically fall between 5 and 10 percent annually, but you should check the current rate in the Robinhood app under Account Settings, then Margin. Interest accrues daily and is deducted from your account automatically.

Beyond the interest rate, there are no upfront fees to open a margin account. However, if you hold a margin position overnight, you pay interest. Day trading on margin (buying and selling the same stock within one trading day) does not incur interest charges, but the position must be closed by market close.

Margin calls and what happens when your account drops in value

Robinhood monitors your account balance constantly. If the value of your holdings falls enough that your borrowed amount exceeds 30 percent of your total account value, Robinhood issues a margin call. This is a demand to restore your account to compliance — meaning you must either deposit cash or sell securities to reduce the borrowed amount.

When a margin call occurs, you typically have a few business days to respond. If you do not, Robinhood will automatically sell your holdings (starting with the most liquid, easiest-to-sell securities) to raise enough cash to meet the requirement. This forced liquidation happens at whatever price the market offers at that moment — you do not choose which stocks to sell or when.

A concrete example: you have $5,000 in your account and borrow $2,500 to buy stocks. Your total holdings are now worth $7,500. If the market drops and your holdings fall to $6,000, your borrowed amount ($2,500) is now 42 percent of your account value. Robinhood requires it to stay below 30 percent, so you need to deposit $1,000 or sell $1,000 worth of stock to bring the ratio back into line.

Day trading rules and the pattern day trader designation

If you make four or more day trades (buying and selling the same security within one trading day) in a rolling five-business-day period, Robinhood flags your account as a pattern day trader. This designation comes from federal regulation, not from Robinhood's choice. Once flagged, you must maintain a minimum account balance of $25,000 at all times to continue day trading.

If your account falls below $25,000 while you are flagged as a pattern day trader, Robinhood will restrict your ability to day trade until the balance rises again. This restriction applies even if you deposit money later — the $25,000 minimum must be in your account before you can place day trades. The restriction can be lifted by Robinhood if you request it, but you will be re-flagged if you day trade again within the five-business-day window.

Day trading on margin does not charge interest because positions close the same day, but the pattern day trader rule still applies. Many traders use margin specifically to day trade because it lets them control larger positions with less cash, but the $25,000 minimum is a hard floor set by federal regulation.

Stocks and securities you cannot buy on margin

Not all securities can be purchased with borrowed money. Robinhood maintains a list of marginable securities — stocks that meet certain criteria for liquidity, price stability, and regulatory approval. Penny stocks (stocks trading below $5), initial public offerings (IPOs) in their first 30 days, and certain over-the-counter (OTC) securities cannot be bought on margin.

Options contracts have their own margin rules separate from stocks. Selling covered calls or cash-secured puts requires margin approval, but the mechanics differ from stock margin. Robinhood displays a margin requirement for each options strategy in the order screen before you place the trade.

If you attempt to buy a non-marginable security with borrowed funds, Robinhood will reject the order or execute it using only your cash balance. You can check whether a specific stock is marginable by searching for it in the Robinhood app — the stock detail page lists margin information.

Short selling on margin and additional costs

A margin account also allows you to short sell — borrowing shares from Robinhood's inventory, selling them immediately, and hoping to buy them back at a lower price. Short selling requires margin because you are borrowing the actual shares, not just cash. Robinhood charges a borrow fee on top of the margin interest, and the fee varies by stock. Stocks in high demand to borrow (because many traders want to short them) carry higher fees.

When you short a stock, you are also liable for any dividends paid on those shares while you hold the short position. If the company pays a dividend, that amount is deducted from your account. Additionally, the person or institution that lent you the shares can demand them back at any time, forcing you to close the position immediately — though Robinhood typically gives notice before doing so.

Short selling amplifies losses in the same way margin amplifies them on the long side. A stock that rises 20 percent wipes out your entire short position if you borrowed 100 percent of the value, and losses can theoretically exceed your initial investment.

How to open a margin account on Robinhood

To convert your cash account to a margin account, open the Robinhood app and navigate to Account, then Settings, then Margin. Robinhood will show you the current margin requirements and interest rates. Tap the option to enable margin, and Robinhood will ask you to confirm that you understand the risks. You must have at least $2,000 in your account to proceed.

Once enabled, margin becomes available immediately. You do not need to wait for approval or submit additional documents. However, if your account balance is below $2,000 at any point, Robinhood will disable margin until the balance rises again.

You can switch back to a cash-only account at any time by going to the same menu and disabling margin. If you have an active margin balance (borrowed money), you must repay it or close the positions before you can disable margin.

Frequently Asked Questions

What happens if I cannot pay back the money I borrowed?

Robinhood will automatically sell your holdings to cover the debt. You are not personally liable for losses beyond your account balance — the broker absorbs the difference. However, forced liquidation often happens at unfavorable prices, and you lose the ability to choose which stocks to sell.

Can I use margin to buy options?

You can trade options in a margin account, but options themselves have separate margin requirements. Selling covered calls or cash-secured puts requires margin approval, and Robinhood shows the margin requirement for each strategy before you place the trade. Buying call or put options does not require margin.

Does Robinhood charge interest on day trades?

No. If you open and close a position on the same trading day, no interest accrues. Interest only applies to positions held overnight. However, the pattern day trader rule still applies if you make four or more day trades in five business days.

What is the difference between margin and a margin call?

Margin is the money Robinhood lends you. A margin call is a demand to restore your account to compliance when the value of your holdings drops. You can have an active margin balance without receiving a margin call — the call only happens if your account falls below the maintenance threshold.

Can I short sell without a margin account?

No. Short selling requires a margin account because you are borrowing actual shares. A cash account does not allow short selling under any circumstances.