Reasons to Trade with Margin

A regular brokerage account is usually opened as a cash account. This means each trade must be paid for in full; if you purchase $8,000 of a marginable stock, you need $8,000 in cash in your account to cover the trade. With a margin account, you may only have to provide $4,000. The remaining half is borrowed from the brokerage firm.

A margin account can also be used to short stocks, which is an advanced strategy that cash accounts cannot use. Here, borrowing is also required: the shares being shorted must be borrowed first. Short positions may also come with stock-borrow fees, especially when the securities are hard to borrow. The rates shown below apply to long margin debit balances.

A third approach that margin accounts can often support is options spread trading. These multi-leg options strategies typically require margin, although availability depends on the broker and the account type.

Experienced traders may decide to move to margin trading for these reasons and others. There is a cost involved, however, and keeping that cost as low as possible is important.

Finding Low Margin Rates

Brokerage firms can differ widely in what they charge customers for margin borrowing. For that reason, it is important to know how much margin interest you are paying and compare rates across brokers.

That’s where we can help. We’ve researched the numbers for you and ranked brokers from lowest to highest based on margin cost. Here is the current list with the latest available interest rates, arranged from the cheapest to the most expensive:

Getting the Best Brokerage Margin Rates

Even though brokerage margin rates can change at any time, their ranking often stays fairly steady compared with one another. For example, brokers with the strongest margin-loan pricing often remain competitive even when overall interest rates rise or fall.

To find the best broker margin interest rates, you should look at both the brokerage firm and the size of your loan balance. Most brokers use a range of rates. The larger your margin loan balance is, the lower your margin interest rate may be. After choosing a broker you like, check whether you can reduce the rate even more by increasing your eligible account balance or margin debit balance.

Regardless of which broker-dealer you plan to use, it is smart to monitor margin rates because they are subject to change. Margin rates can be affected by several factors, including benchmark interest rates, regulatory changes, industry conditions, and market volatility.

Why Look for the Best Margin Interest Rates

Besides the obvious benefit that lower margin rates mean lower borrowing costs, there are several other reasons to compare brokers with low rates.

For one, when a broker’s lowest margin rates are more attractive than those of similar competitors, the firm may also have other cost advantages. Low-cost brokers usually focus on active traders or regular investors. They are often associated with features such as commission-free stock and ETF trades, account promotions, and inexpensive platform access.

The extra buying power that margin provides, the option to borrow cash against a portfolio, and the ability to try to profit from falling securities by selling shares short can all add flexibility to a trading account. Those benefits and account permissions also come with margin interest charges and additional risk. The lower the rates are, the less costly the borrowing portion can be.

Another reason to choose brokers with low rates is that borrowing costs remain lower if a trade takes more time than expected or moves against you. Margin still increases losses from the trade itself, but a lower interest rate can reduce the additional expense created by the loan.

Why Not Look for the Best Margin Interest Rates

Although most investors would probably be drawn to low margin interest rates, there are also reasons some traders may still consider brokers with higher rates.

Many full-service brokerage firms charge higher margin rates, but they may also provide a wider range of investment services. With those higher rates, customers may receive an experience that feels more like a traditional banking or wealth-management relationship than a fintech-style brokerage account.

Some larger firms provide direct routing, quicker trade execution, advanced trading platforms, and many other features. It is also common for some brokers to offer benefits such as free market data or Level 2 quotes at no extra cost, although availability depends on the firm and account type.

Depending on your expectations, preferences, trading approach (frequency, product type, order size), and many other factors, the lowest margin rate may or may not be your most important priority.

Taking Advantage of Low Margin Rates

Now let’s return to why low margin rates can be useful. When you find the lowest available margin rates, it can be easier to make practical use of the margin your broker provides. You may be able to hold positions longer at a lower cost, and you may also be able to borrow cash against your portfolio for much less.

To use low margin rates effectively, there are several points to keep in mind.

First, make sure you manage risk carefully. When you borrow from your broker, there is usually no fixed repayment schedule, but interest continues to accrue while the margin loan is outstanding, and the account must keep meeting margin requirements.

If your trade moves against you and the account falls below the broker’s margin requirements, you may receive a margin call or face forced liquidation. Interest can keep accumulating on the margin balance until the loan is reduced or paid off.

Another point to consider is maintaining proper balance in your portfolio. For most investors, becoming overleveraged in one security or a small group of closely related securities is not advisable.

In short, to benefit from low margin rates and use them wisely, it is a good idea to have a clear plan for how margin will be used.