Robinhood Cuts Margin Rate in Half to 2.5%

Digital investment platform Robinhood has slashed its margin rate in half from 5% to 2.5%.

The margin rate is the interest paid by account holders when they borrow against assets held in an account. Typically, a brokerage account holder is allowed to borrow up to a certain percentage of their holdings as the loan is secured by existing assets. If an investor goes beyond the allowable percentage of borrowing, the platform may issue a margin call forcing the investor to cover a portion of the money owed.

Robinhood explained that margin investing is offered to eligible customers through Robinhood Gold, a premium investing account that includes Nasdaq Level 2 market data and Morningstar Research Reports, for $5 a month. The first $1,000 of margin is included in the $5 monthly fee.  After that, customers pay a flat 2.5% yearly interest rate on any amount used above $1,000.

Robinhood’s margin rates fare pretty well against the competition according to published rates but larger account holders at competing brokerages may also negotiate better deals that are not typically posted publicly.

Robinhood has recently been hit with a series of bad news including settling an enforcement proceeding by the Securities and Exchange Commission and pending action by the Commonwealth of Massachusetts Securities Regulator.

Robinhood has emerged as a widely popular trading venue with a slick presentation, crypto, and commission-free trading. Millennial investors have flocked to Robinhood in droves but the platform has endured multiple challenges while managing rapid growth.

 

 

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