Robinhood is a very popular app to invest in stocks. One of its functions is to allow users to invest on margin. Basically, you’re borrowing money to increase your potential gains, though you also risk greater losses.
If you’re not sure how you can get the margin function, you’re in the right place. We’ll walk you through the steps. You’ll also find some answers to questions related to margin.
How to Get Margin on Robinhood?
According to Robinhood, buying on margin means “borrowing money from your broker to purchase securities”. Margin is the difference between how much you invest in total and the amount of money you borrowed from your broker. As with all loans, you’re required to pay the broker back plus interest.
To qualify for margin, you’ll need a Robinhood Gold subscription at $5 a month to access the feature. You must also pay for $1,000 of margin, and the $5 a month includes the margin payment.
Also, you’ll have to pay a 2.5% interest rate for the margin on Robinhood.
These are the steps to qualify for margin on Robinhood:
- Get a Robinhood Gold account.
- Have a portfolio value of at least $2,000, or $25,000 if you’re a designated day trader.
- Open the Robinhood app.
- Tap on the person icon on the bottom right.
- Tap the three-line menu icon in the top right.
- Select the yellow icon on the top right.
- Select “Margin Investing.”
- Select “Turn on Margin.”
- Wait for the app to check your eligibility.
- Select “Confirm.”
You can also set a borrowing limit at step eight. This will help prevent you from buying too much. You can also check your available margin at any time.
Available margin isn’t the margin you’re currently using. That is shown in the bar below.
Margin is a quicker way to gain profits, but it can be very risky. You have to pay the interest back even if your investment fails. If you borrow too much, your broker can sell off your assets should you fail to pay them back.
How to Increase Your Available Margin?
Increasing your available margin is rather simple. First, you must ensure your account isn’t in deficit and you shouldn’t have received a margin call. These two factors are important to increase your margin.
Next, add more money into your Robinhood Gold account. Increasing your portfolio value will usually increase your available margin. The scale is approximately 1:1, so a $4,000 account should have around the same available margin.
However, if you have a borrowing limit set up, your available margin won’t increase. Even if you add a lot of money, the limit will prevent the margin from rising. You’ll have to remove the borrowing limit first before you can proceed.
Additional FAQs
Margin is a very complicated topic, so we’ll answer some commonly asked questions.
What Does Robinhood Gold Cost?
You pay $5 a month to maintain a Robinhood Gold account. You’ll also be paying your margin interest if you invest more than $1,000.
You can try Robinhood Gold for 30 days free.
What Are the Risks of Margin?
There are a few risks associated with trading on margin. They include:
• Increased Losses.
Since you’re borrowing money from your broker, you’ll have to pay them back, even if you experience a loss. Some investors lose much more than they invested in the first place.
Add to the fact that you’re also paying interest. The amount to pay back will compound quickly if you can’t afford it.
• Margin Call.
A margin call is when your broker calls you to add more money into the margin account. This happens when the amount is below the margin minimum. Underperforming securities can cause the amount to dip this way.
To resolve this, you’ll have to sell some of your assets to meet the margin requirement. Sometimes it gets so bad you’ll have to sell everything. This still isn’t the worst possible outcome from margin trading!
• Liquidation.
If you as an investor fail to keep your promise as per your margin loan agreement, the broker can take action. Robinhood can liquidate all the remaining assets in your account. This includes securities from other firms and companies.
Liquidation can happen without your prior approval. Robinhood can simply do so within their rights.
To prevent these outcomes, you shouldn’t bite off more than you can chew. Don’t borrow too much either. And if you do borrow, try to return in as soon as possible.
If you trade on margin, you should never neglect to regularly look at your portfolio.
Why Can’t I Use Margin on Robinhood?
If you don’t have a Robinhood Gold account, you can’t use margin at all.
If you do have an account, you either don’t have enough money on the account or have received a margin call. You also have to invest all the cash in your account to be able to use margin.
You may also have forgotten to turn margin trading on.
Make sure you don’t have a deficit or received a margin call. You should be able to use margin if you’re in the clear.
Is Robinhood Safe for Investors?
Robinhood is safe for investors. The company provides security protection for its users. It also encrypts personal information to prevent hackers from stealing it.
Accounts on Robinhood are protected by the Securities Investor Protection Corporation (SIPC). The SIPC was formed to help investors who struggle in their investments. It does so by restoring investor funds up to $500,000 for securities and $250,000 for cash payments.
Financially troubled brokerages will appreciate this assistance.
Robinhood also has up to $1.5 million for cash and $10 million for securities protection per customer by partnering with underwriters at Lloyd’s of London. This protection is triggered when SIPC coverage runs out.
While these protections are in place, investors can still make financial mistakes. This can’t be blamed on Robinhood.
Does Robinhood Have Cash Accounts?
Yes, it does. You can get one by downgrading from a Gold or Instant account. As long as you aren’t using any Gold Buying Power, you can downgrade to a Cash account.
You need to get in touch with Robinhood’s support team before you can make the change.
Here are the steps to downgrade to a Cash account:
1. Tap the “Account” button at the bottom right.
2. Select the three bars at the top-right corner.
3. Select “Settings.”
4. Tap “Robinhood Gold.”
5. Select “Downgrade from Gold.”
6. Downgrade to Robinhood Instant.
7. Contact the support team to downgrade further to Cash.
Cash accounts don’t have the same trading restrictions as the other two accounts, but some users don’t like using Robinhood Cash. They believe that getting money late isn’t desirable. However, some people want unlimited day trades and don’t mind waiting a bit. If you share this sentiment, Robinhood Cash may be the option for you.
Does Robinhood Have Margin Accounts?
Yes, it does. Robinhood Gold accounts are eligible for margin trading. To upgrade, you must pay $5 a month plus any interest. You must not have a deficit at all and nor received a margin call.
You also have to turn margin trading on from the options. The steps can be found above.
How Do I Get More Available Margin on Robinhood?
You can get more available margin when you increase the amount of cash in your Robinhood Gold account. The more money you have, the more margin is available for you to use.
Should I Buy Margin?
That is not for us to decide. Buying on margin is a good way to increase your profits and gains. However, this is highly dependent on how well you can handle a loss. It also depends on how much you understand margin trading.
Investors who understand margin will be able to earn more. However, the risks are significant. They have to be prepared to lose money if their securities underperform.
Anyone who buys margin will dread the margin call.
If you know you can stomach a loss and pay it back, you can risk buying margin. The rewards can be significantly more than investors who use safer methods.
However, if you know you can’t handle a hit like this, don’t buy margin. It’s better to be safe than sorry.
High Risk, High Reward
Buying securities on margin can be a quick way to earn some fast cash, but the risks are high. Robinhood allows you to get margin accounts, but there are several requirements in place. You need to be careful and it’s recommended you set a borrowing limit.
Do you find Robinhood reliable? Is buying margin worth the risk? Let us know in the comments section below.
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