Margin investing means borrowing money from Robinhood to buy stocks

When you use margin on Robinhood, you are borrowing cash from the brokerage to purchase securities. Instead of putting up the full purchase price yourself, you pay a portion and Robinhood lends you the rest. You pay interest on the borrowed amount, similar to a loan.

Robinhood offers margin accounts to users who meet their requirements. The borrowed money sits in your account as buying power — an amount beyond your actual cash that you can spend on trades. If you have $5,000 in cash and Robinhood approves you for a margin account, your buying power might be $10,000 or more, depending on the account type and what you own.

The catch is that your securities act as collateral. If the value of your holdings drops below a certain threshold, Robinhood can force you to sell positions or deposit more cash to cover the shortfall. This is called a margin call.

Key Takeaways

  • Margin lets you borrow money from Robinhood to buy stocks, using your existing holdings as collateral for the loan.
  • You pay interest on the borrowed amount, and Robinhood sets the interest rate, which varies based on how much you borrow.
  • If your account value falls below Robinhood's maintenance requirement, you face a margin call and must deposit cash or sell holdings immediately.
  • Margin amplifies both gains and losses — a 10% stock price drop can wipe out 20% or more of your account if you are using borrowed money.
  • Robinhood requires a minimum account balance and approval before you can open a margin account.

How much can you borrow and what does it cost

The amount you can borrow depends on your account type and the value of your holdings. Robinhood offers different margin levels — typically starting at 2:1 buying power (you can borrow up to the amount you have in cash) and going up to higher ratios for experienced traders. A 2:1 account with $5,000 in cash gives you $10,000 in total buying power.

Interest rates on margin loans vary. Robinhood charges a tiered rate based on how much you borrow — the more you borrow, the higher the rate. Rates are typically between 5% and 12.5% annually, though this changes based on market conditions and Robinhood's pricing. The interest accrues daily and is deducted from your account automatically.

You can pay back the borrowed amount at any time without penalty. Many traders repay margin loans as soon as they close a profitable trade, keeping the borrowed money outstanding only as long as needed.

What happens during a margin call

A margin call occurs when the value of your account drops below Robinhood's maintenance requirement — a minimum percentage of your total positions that must be covered by your own cash. If you fall below this threshold, Robinhood will notify you and give you a set time (usually a few business days) to deposit cash or sell holdings to bring your account back into compliance.

If you do not act, Robinhood can liquidate your positions without asking permission. The brokerage will sell your holdings, starting with the most liquid (easiest to sell quickly), until your account meets the maintenance requirement again. You have no control over which stocks are sold or when.

A margin call can happen quickly during market downturns. If you own volatile stocks or use high leverage, a 15% market drop can trigger a call. This forces you to sell at the worst time — when prices are already down — locking in losses.

The real risk of using margin

Margin magnifies both profits and losses. If a stock rises 20% and you bought it with 2:1 margin, your profit is roughly 40% (before interest costs). But if the stock falls 20%, your loss is roughly 40%. With higher margin ratios, the swings are even more extreme.

You can lose more than your initial investment. If you put in $5,000 and borrow $5,000 to buy $10,000 worth of stock, and that stock drops 60%, your holdings are worth $4,000. You still owe Robinhood $5,000 plus interest. Your account is underwater, and you must deposit cash to cover the gap or face forced liquidation at a loss.

Interest costs add up, especially if you hold margin positions for months. A 10% annual rate on a $5,000 loan costs $500 per year, or about $42 per month. If your trades are not profitable enough to beat the interest rate, you are losing money simply by holding the borrowed cash.

Who can open a margin account on Robinhood

Robinhood requires a minimum account balance to open a margin account — typically $2,000, though this can vary. You must also be at least 18 years old and a U.S. resident with a valid Social Security number.

Robinhood reviews your account history and trading experience before approving margin. New accounts may not be approved immediately. Some users are approved within days; others wait weeks or are denied if Robinhood determines they lack sufficient experience.

Once approved, you can enable margin in your account settings. Robinhood will show you the interest rate, buying power, and maintenance requirement specific to your account. You can also disable margin at any time, though you must repay any outstanding borrowed balance first.

Alternatives to margin investing

If you want to increase your buying power without borrowing, you can simply deposit more cash into your account. This gives you the same ability to buy more stocks without the interest costs or margin call risk.

Options trading is another way to control large positions with small upfront costs, though options carry their own risks and complexity. A call option lets you control 100 shares of stock for a fraction of the stock's price, but options can expire worthless and you can lose your entire investment.

Dollar-cost averaging — investing a fixed amount regularly over time — lets you build positions without leverage. This approach is slower but removes the risk of a margin call wiping out your account during a downturn.

Frequently Asked Questions

Can I lose more money than I invested if I use margin?

Yes. If you invest $5,000 of your own money and borrow $5,000, you control $10,000 in stock. If that stock drops 60%, it is worth $4,000. You still owe Robinhood $5,000 plus interest, so you have lost more than your initial $5,000 investment. You must deposit cash to cover the shortfall.

What is the interest rate on Robinhood margin?

Robinhood charges tiered rates based on how much you borrow, typically ranging from 5% to 12.5% annually. The exact rate depends on market conditions and how much margin you are using. You can see your specific rate in your account settings before you borrow.

How long can I hold a margin position?

You can hold a margin position as long as you want, as long as your account stays above the maintenance requirement. Interest accrues daily and is deducted from your account automatically. There is no time limit, but the longer you hold borrowed money, the more interest you pay.

What happens if I do not respond to a margin call?

If you do not deposit cash or sell holdings within the time Robinhood gives you (usually a few business days), the brokerage will liquidate your positions without permission. Robinhood sells your holdings starting with the most liquid, until your account meets the maintenance requirement. You have no control over which stocks are sold.

Is margin investing right for me?

Margin is best for experienced traders who understand leverage and can tolerate rapid losses. If you are new to investing, building your account with your own cash first is safer. Margin turns small mistakes into large losses and forces you to sell during downturns when you can least afford it.