Trading On margin

Margin trading: which online broker offers you the best rate?

With commission free trading, you might think that all brokers have the same costs. But keep in mind that there are still other fees to consider and not all brokers will charge the same. For margin trading, the difference in the margin rate may represent a greater cost than the commission you were released from.




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Margin trading is best used by more experienced investors. Using your stocks as collateral to buy more stocks is a great way to increase returns. But additional rewards do not come without additional risk. Losses can also multiply quickly. Brokers will need additional documents to open an account approved for margin trading to ensure that you understand the risks.


But a margin account shouldn’t be just for margin trading. If you are fully invested and need cash for other reasons, many brokers make it easy for you to borrow funds. And as long as you maintain an appropriate ratio between borrowed funds and account value, repayment offers flexibility.

This could fund real estate transactions, a kids’ college, and travel with lower credit card rates and less hassle than a home equity line of credit.

Charles Schwab (SCHW) and Fidelity, for example, even provide debit cards or checks for easy access to funds. They also provide videos explaining the rules of margin trading.

Such account characteristics could influence customer ratings of their brokers for margin trading, as well as the interest rate charged.

Lowest margin rates

Of the 10 companies surveyed in IBD’s ninth annual survey of online brokerage clients, the top five online brokers for margin investing / margin interest rates were Tastyworks, Interactive Brokers, Robinhood, Charles Schwab and TD Ameritrade. Rankings are based on how clients of brokers rated them on the Margin Investing attribute.

Looking at these five companies, plus Fidelity – a better online broker overall – Interactive brokers (IBKR) offers the lowest rates in January 2021. Whether you use Interactive Brokers Lite or Interactive Brokers Pro, your margin trading costs will be lower than other major IBD online brokers.

For lower debit balances, the rate difference is dramatic. For a debit balance of $ 10,000 over one year, Interactive Brokers could save you almost $ 700 on your trading margins compared to Charles Schwab’s TD Ameritrade.

The difference between rates at higher balances may be less in basis points, but may be significant in absolute dollars. Once you hit balances over $ 100,000 or $ 1 million, you might see a five-digit difference.

Robin Hood (HOOD) is also quite low. With their Gold price, you pay $ 5 per month. This gives you 30 days of margin access and covers the first $ 1,000. Beyond that, it is a fixed margin rate of 2.5%.

The table below can give you a starting point in your research. The information came from the TD Ameritrade, Fidelity, Charles Schwab, Tastyworks, Robinhood and Interactive Brokers websites in early 2021. They have been updated since then, but only Interactive Broker has changed with a three basis point drop to lower levels. Robinhood’s last update was in December 2020 and the others have kept their rates stable since March 2020. These rates are subject to change at any time.

Can you negotiate a lower margin rate?

As with most things, you may be able to negotiate a lower rate than what is displayed on the website. TD Ameritrade and Charles Schwab both indicate on their websites that they can make a phone call to inquire about rates on debit balances of $ 500,000 or more.

With brokers constantly trying to attract accounts to their platforms, a phone call may be enough to get a more competitive rate if your broker is faced with the alternative of losing your business.

Why pay more for a margin investment?

It might seem easy enough to just go with the broker with the lowest margin rates. But there are other factors to consider. If you don’t use margin trading or can’t because you are trading in retirement accounts, the lowest rates aren’t really a factor for you.

You may also decide that you prefer other features from one broker to another. TD Ameritrade’s educational resources, Tastyworks’ options trading platform, Fidelity’s research tools, or Schwab’s retirement planning might encourage you to stay with a broker despite lower rates from Interactive Brokers. But with the table above, you will at least know how much you are paying for your favorite experience.

Follow Nielsen on Twitter at @IBD_JNielsen.

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