2019 margin interest rates for major brokerage firms. Compare margin accounts interest rates at Etrade, Merrill Edge, Interactive Brokers, Charles Schwab, TradeStation, TD Ameritrade, Fidelity Investments, Wells Fargo Brokerage, Firstrade, and Ally Invest.

The Importance of Getting The Lowest Margin Rates For Investors and Traders

For a stock market investor or trader, margin can be a potent tool, provided it is used judiciously. It is also vital to spend time in determining which stock broker is offering the lowest margin rates.

When you operate at lowest margin rates, it minimizes your costs of leverage. It is quite like initiating a loan from your brokerage. Clearly, you would want to obtain the loan at the lowest interest rate to reduce your investment costs.

Reduce Your Risk of Getting into a Debt Trap

Investing time and effort in getting the lowest margin rates is worthwhile, and it will always pay in the long run. While you can keep your loan for as long you need, you are required to fulfill your obligations.

You should be aware that when you sell a stock in a margin account, the sale proceeds will go to the broker against the loan repayment until it is fully paid.

In other words, the marginable securities in your account are treated as collateral. The interest costs will apply to your account until you pay off the loan. If the margin rates are high, your debt level will increase as the interest continues to accrue. As your debt goes higher, the interest charges will also be higher.

The longer you hold investments on margin, the higher is the return that you must make to break even. If the margin rates are high, the odds of making a profit will be stacked against you.

If the market value of your investments goes down, you could be staring at getting into a debt trap if you wait for the market to recover. In addition, you may be forced to sell your stocks at a significant loss in order to avoid the debt trap.

Seek Lowest Margin Rates Brokerage Firms and Invest Short-Term

While it is critical to compare offers from different brokers and choose the lowest margin rates, it is equally important to buy on margin for short-term investments. When you exit your stock trades quickly, your market risk exposure is reduced.

Since you have bought the securities at the lowest possible margin rates, it gets easier to exit with a small profit. Margin trading will allow you to increase your trade volumes. So you can keep aiming for small gains in price, but make a larger absolute gain because of higher trading volume.

If the margin rates are high, it will deter you from selling the stock until you have covered the cost and made some profit over and above that. This potential delay in exiting a trade can prove to be costly, particularly in a volatile market.

Carry Trade

Carry trades involve borrowing at lower interest rates and investing in instruments that deliver higher returns. Although carry trades are more popular in currency markets, knowledgeable investors can use them successfully in the stock markets as well.

Example

Let us assume you have $25,000 to invest and you take on a margin debt of $25,000, and invest this entire amount in a diversified portfolio which yields 10%. If the margin rate is 7%, you will generate an additional 3% on the overall portfolio. Note the following calculation:

Unleveraged Portfolio of $25,000
@ 10% produces a return of $2,500 (A)

Leveraged Portfolio of $50,000
$50,000 @ 10% produces a return of $5,000
[Less] Margin cost @ 7% on $25,000 = $1,750
Net Return = $5,000 - $1,750 = $3,250 (B)

In this example, with a leveraged portfolio, you make an additional gain of $750 (A - B).

If the margin rate was 6% or 5%, your net gain would have increased proportionately.

About Lowest Margin Rates

Above is a table of rates for margin trading charged by the leading discount brokerage firms such as Etrade, Merrill Edge/Lynch, TD Ameritrade, Fidelity Investments, Charles Schwab, Ally Invest, Interactive Brokers and others.

You can compare current margin rates offered by the major online U.S. investment firms, and identify which company provides the best or the lowest rates, and which brokers have the worst or highest margin rates.

All brokerage firms require at least $2,000 initial funding for a margin account, which is different from a traditional brokerage account. Some brokers, for example TradeStation and Interactive Brokers, require much higher minimum investment for a margin account.

Investing on margin means buying equities by using money borrowed from a broker. Margin trading can significantly amplify returns if used properly. On the other hand, it can magnify losses and may not be appropriate for beginner investors.