Margin trading involves borrowing money from your broker and investing the money in securities. It can be a risky endeavor. While it can magnify your gains, it also can magnify your losses. A key consideration for traders who use margin is the interest rate they pay on their margin loan.
Here are the brokers with the best margin rates as of October 2024.
Best margin rates
* Rate information as of Oct. 2, 2024, based on tier rates at a balance level of $25,000.
Robinhood
Robinhood is known for its popular mobile app and commission-free trading of stocks, exchange-traded funds (ETFs) and options. It has worked to improve its overall offering in recent years by adding IRA accounts and boosting its customer service options. However, it still offers just a limited number of accounts and does not provide mutual fund trading. Its margin rate is one of the most attractive in the industry.
Margin rate: 6.25 percent
Interactive Brokers
Interactive Brokers is one of the best brokers in the industry and is particularly useful for advanced traders. Investors enjoy a top trading platform, a wide offering of tradable securities and about 18,000 no-transaction-fee mutual funds. Its margin rates are also among the lowest in the industry.
Margin rate: 6.33 percent (IBKR PRO) or 7.33 percent (IBKR LITE)
moomoo
Investors may not be as familiar with moomoo, but the relatively new broker has a lot to offer. Customers get commission-free trading on stocks, ETFs and options, as well as access to Hong Kong stocks and Chinese A-shares. Long-term investors may be disappointed by the lack of mutual funds and limited account types, but traders will find the margin rates attractive.
Margin rate: 6.80 percent
Webull
Webull is a solid choice for those looking for a low-cost, mobile experience. Stock, ETF and option trades are all commission free, and beginning investors will appreciate the fractional shares offering. Its margin rate comes in below 10 percent, but it is not as attractive as its mobile rival Robinhood.
Margin rate: 9.24 percent
Tradier
Tradier caters to advanced traders by offering features such as futures trading and various platforms, including desktop, web and mobile apps. You’ll have to pay a monthly subscription fee unless you opt for the most basic version, which comes with a 35-cent commission on stock trades. The Pro plan is $10 per month, while the Pro Plus plan is $35 per month.
Margin rate: 9.50 percent
tastytrade
Tastytrade may appeal to active traders looking to keep costs to a minimum. Options commissions are capped on individual trades, and stock and ETF trades are commission free. You won’t have access to mutual funds, however, and the research offering is lacking.
Margin rate: 10.50 percent
Margin trading: How it works
Borrowing through a margin loan allows you to buy more of a security than you could with your available cash.
Margin trading can boost your returns if your investments outperform the cost of the loan, but your losses can also be magnified and even lead to a margin call.
The interest rates available on margin loans are variable and are typically tied to the federal funds rate set by the Federal Reserve.
Risks of margin trading
Margin trading comes with significant risks and should only be used by experienced traders.
Some risks to consider include:
- Losing more than your initial investment: If a stock you purchased with borrowed funds declines, you will still have to repay the entire amount you borrowed plus interest. The loan amount does not decline along with the stock price.
- Margin calls: You may experience a margin call if the securities you hold in your account fall below a certain level known as the maintenance margin. If it happens, you’ll be required to put up additional securities or cash to meet the requirement.
Bottom line
Margin trading can magnify both your returns and losses depending on how your underlying investments perform. Choosing a broker with an attractive margin rate may make it easier to identify investments that will outperform the margin loan.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.