Brokers With Lowest Margin Rates

Brokers with the lowest margin rates offer competitive fees on borrowed capital. This means retail investors can increase their purchasing power and potential returns while protecting profits. In this article, we explain how margin trading works. We also list the brokers with the lowest margin rates in 2024.

Margin Trading

A margin account allows investors to borrow capital from their brokerage. This means traders can open larger positions or spread capital across various assets and strategies. Trading on margin is popular with retail investors looking to maximize their market exposure as well as institutional investors and hedge funds.

Example

Let’s say you have $5,000 to invest in Apple stocks. Your broker then lends you a further $5,000, increasing your purchasing power to $10,000. If the price of Apple shares increases by 10%, you could sell your stocks and be left with $11,000 ($10,000 * 110%). Once you return the borrowed capital ($5,000), you are left with $6,000 ($11,000 – $5,000), including $1,000 in profit. Importantly, this is $500 more than if you had only invested the initial $5,000 ($5,000 * 110% = $5,500).

Margin Rate

However, what the scenario and figures above does not take into account is the margin rate, which is the interest or fee payable on the borrowed amount. Let’s assume that in the same example, your broker has a margin rate of 5%. This means you would owe 5% of $5,o00 (the borrowed capital) which equals $250. In total then, you would return $5,250 ($5,000 + $250) to your broker, leaving you with a $750 profit.

Interestingly though, brokers with the lowest margin rates might have offered you 1.5%. So instead of owing $250 ($5,000 * 5%), you could have paid $75 ($5,000 * 1.5%), giving you an additional $175 in profit ($250 – $75). Now this might not feel like a huge saving, however, active traders that regularly open leveraged positions could save a serious amount in the long term.

Note, the margin rate is only charged on borrowed funds, not the entire investment.

What Impacts the Margin Rate?

When trying to find brokers with the cheapest margin rates, it’s important to understand what can influence the price quoted:

• Loaned capital: Many brokers impose different margin rates depending on how much you are borrowing. For example, with TD Ameritrade, the margin rate for a $25,000 loan is 9%, however, it is 7.5% on a $300,000 loan.
• Customer demand: Some brokers increase margin rates during periods of high demand. This is to make more money from an influx of customers as well as to mitigate the additional risk when lending out so much capital.
• Inflation: As with all loans, inflation can impact interest rates. If banks increase interest rates, many online brokers will pass this on to their customers.

Brokers With the Lowest Margin Rates

The list below contains brokerages with the best margin rates in 2024:

• Interactive Brokers Pro: 1.83%
• M1 Finance Plus: 2.25%
• Interactive Brokers Lite: 2.56%
• Robinhood: 3.0%
• M1 Finance: 3.75%
• Webull: 6.49%
• Fidelity: 6.87%
• ETrade: 7.95%

Note, for each of the providers, a debit balance of $50,000 is assumed. You can update the debit balance on each firm’s website to see the respective rate. 

Interactive Brokers

Interactive Brokers is a popular option with traders looking for competitive margin rates. The brokerage offers two account types. The Lite account is the basic solution with fewer features and a flat margin rate of 2.56% for all debit balances. The Pro account provides traders with greater buying power and more competitive margin rates.

Clients can also access tiers of leverage loans which can be blended. For example, the first $100,000 of a loan accrues fees at a 1.83% rate while the second tier, between $100,000 and $1,000,000, accrues at 1.33%. By using the free margin calculator on the firm’s website, a balance of $300,000 would have a blended margin rate of 1.497%.

Interactive Brokers is regulated by the FCA in the UK and the SEC in the USA. It is also a global broker so traders from Australia to Canada to Europe can register for one of the account options.

M1 Finance

M1 Finance is one of the online brokers with the lowest margin rates. M1 Finance Plus offers rates as low as 2.25% while the standard M1 Finance solution offers rates of 3.75%. This is competitive versus other trading platforms, making it popular with beginners.

On the downside, traders need to maintain an account balance of $2,000 to trade on margin. Also, borrowed funds can only contribute up to 40% of your total portfolio. Finally, M1 Finance is limited to traders in the US. Investors from other countries will need to sign up with another provider.

Robinhood

Clients can access margin trading through Robinhood Gold. The first $1,000 of borrowed funds is covered by the $5 monthly fee for the Gold margin account. For capital greater than $1,000, there is a flat rate of 3% per year.

But while it may offer competitive borrowing, the broker has made news headlines for system outages, regulatory fines and lawsuits from dissatisfied customers. With that in mind, we don’t recommend trading with Robinhood.

Bottom Line on Brokers With the Lowest Margin Rates

Margin trading accounts allow investors to take out larger positions than their capital would otherwise allow. This can increase the size of both profits and losses. Unsurprisingly, brokers that offer margin trading usually charge for the privilege, typically in the form of a percentage of the borrowed capital. On a more positive note, brokers with the lowest margin rates normally reduce the fee the more you borrow. See our list of platforms with the cheapest margin rates above to start trading today.

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