A margin account lets you borrow money from Robinhood to buy stocks

A margin account is a brokerage account that allows you to borrow cash from Robinhood to purchase securities. Instead of using only the money you have deposited, you can borrow against the value of stocks you already own. This borrowed money is called a margin loan, and you pay interest on it.

When you open a standard Robinhood account, you start with a cash account — you can only buy what you can afford with your own money. A margin account works differently. Robinhood lends you money, and the stocks in your account serve as collateral for that loan. You must repay the borrowed amount plus interest.

Margin accounts are riskier than cash accounts because you can lose more money than you invested. If your stocks fall in value, you still owe the full amount you borrowed. Robinhood also has the right to sell your positions without your permission if your account falls below certain thresholds.

Key Takeaways

  • A margin account on Robinhood lets you borrow money to buy stocks, with your existing holdings as collateral.
  • You pay interest on borrowed funds, and Robinhood charges a yearly rate that varies based on how much you borrow.
  • You must maintain a minimum account balance called the maintenance requirement, or Robinhood can force-sell your positions.
  • Margin accounts carry higher risk because losses are magnified — you can lose more than your initial investment.
  • Robinhood requires you to have at least $2,000 in your account to open a margin account and to keep it open.

How much you can borrow depends on your account balance

Robinhood calculates your buying power — the total amount you can spend — based on your cash balance plus the value of your stocks. The amount you can borrow is a percentage of your holdings. For most stocks, Robinhood allows you to borrow up to 50 percent of the stock's value. This means if you own $10,000 in stocks, you can borrow up to $5,000.

Some stocks have lower margin limits. Penny stocks, highly volatile stocks, and stocks with low trading volume may only allow you to borrow 25 or 30 percent of their value. Robinhood displays the margin requirement for each stock in the app — look for the margin icon when you view a stock's details.

Your total buying power is your cash plus the amount you can borrow. If you have $5,000 in cash and $10,000 in stocks with a 50 percent margin limit, your buying power is roughly $10,000 ($5,000 cash plus $5,000 you can borrow).

Interest charges and how they accumulate

Robinhood charges interest on the money you borrow, calculated daily and charged monthly. The interest rate is an annual percentage rate (APR) that varies depending on how much you borrow. The more you borrow, the higher your rate tends to be. Robinhood publishes its current rates on the app under Account Settings, though the exact rate you pay depends on your account size and borrowing amount.

Interest is deducted from your cash balance each month. If you borrow $5,000 at an APR of 8 percent, you would owe roughly $33 per month in interest (though the exact amount depends on the number of days in the month). This cost compounds over time if you carry a margin balance for months or years.

You can reduce your interest charges by repaying the borrowed amount. Any cash you deposit or any proceeds from selling stocks go toward paying down your margin loan first, before adding to your available cash.

The maintenance requirement and forced selling

Robinhood requires you to keep a minimum amount of equity in your account at all times — this is called the maintenance requirement. For most stocks, you must maintain equity equal to at least 30 percent of the value of your margin positions. If your account falls below this threshold, Robinhood will issue a margin call.

When you receive a margin call, you have a short window — usually a few days — to deposit cash or sell stocks to bring your account back into compliance. If you do not act, Robinhood will automatically sell your positions without asking your permission. The company sells positions to raise cash as quickly as possible, which may mean selling at unfavorable prices or selling your best performers first.

Margin calls happen most often when the stock market drops sharply. If you own $10,000 in stocks and the market falls 40 percent, your holdings are now worth $6,000. If you borrowed $5,000, your equity is only $1,000 — well below the 30 percent maintenance requirement. You would need to deposit cash or sell stocks when ready.

Opening a margin account on Robinhood

To open a margin account, you must have at least $2,000 in your Robinhood account and be at least 18 years old. Go to Account Settings, then Investing, then Margin. Robinhood will show you the margin agreement — a legal document explaining the terms, risks, and fees. You must read and accept this agreement before the account is activated.

Robinhood may take up to one business day to review your request. Once approved, your margin buying power becomes available when ready. You do not need to do anything else — you can start borrowing right away by placing buy orders that exceed your cash balance.

You can also downgrade from a margin account back to a cash account at any time through the same settings menu. However, if you have an outstanding margin balance, you must repay it before downgrading. Robinhood will not let you switch to a cash account while you owe borrowed money.

Risks specific to margin accounts

The biggest risk is leverage — borrowing money amplifies both gains and losses. If you invest $5,000 of your own money and borrow $5,000 to buy $10,000 in stocks, a 10 percent gain means you make $1,000 profit on your $5,000 investment (a 20 percent return). But a 10 percent loss means you lose $1,000 on your $5,000 investment (a 20 percent loss). The borrowed money magnifies the outcome in both directions.

A second risk is forced liquidation. You do not control when Robinhood sells your stocks during a margin call. The company may sell positions you wanted to keep or sell at prices you would not have chosen. This can lock in losses and disrupt your investment strategy.

A third risk is the interest cost. If you borrow for months or years, interest charges eat into your returns. A stock that gains 5 percent per year may not beat the 8 percent interest you are paying on borrowed money.

Margin accounts versus cash accounts

A cash account requires you to have the full purchase price before you buy. You cannot borrow. This means your losses are limited to the money you invested — you cannot lose more than you put in. Cash accounts also have no maintenance requirements and no margin calls.

The trade-off is that cash accounts have lower buying power. You can only buy what you have cash for. If you have $5,000, you can spend $5,000. With a margin account and the same $5,000, you might have $10,000 in buying power.

Cash accounts also have a settlement rule: when you sell a stock, the proceeds take two business days to settle. During those two days, you cannot use that money to buy other stocks. Margin accounts do not have this restriction — you can buy and sell the same day without waiting for settlement.

Frequently Asked Questions

What happens if my stocks drop and I cannot pay back the margin loan?

Robinhood will force-sell your positions to raise cash and pay back the loan. You are responsible for any remaining debt after the sale. If your stocks fall 50 percent and you borrowed $5,000, Robinhood sells your holdings, uses the proceeds to repay as much as possible, and you owe the difference.

Can I use margin to buy options or crypto on Robinhood?

Margin rules vary by asset type. You cannot use margin to buy crypto on Robinhood. For options, margin availability depends on your account type and options level. Check your account settings or contact Robinhood support for details on what you can borrow for.

Do I have to pay back the margin loan all at once?

No. You pay interest monthly on whatever balance you carry. You can repay the loan gradually by depositing cash or selling stocks. Any cash you add to your account goes toward the loan balance first.

What is the difference between a margin call and a forced liquidation?

A margin call is a notice that your account has fallen below the maintenance requirement. You have a few days to fix it. A forced liquidation is when Robinhood automatically sells your stocks because you did not respond to the margin call in time.

Can I lose more money than I invested with a margin account?

Yes. If you invest $5,000 of your own money and borrow $5,000, you have $10,000 at risk. If those stocks fall 60 percent, they are worth $4,000. You still owe the $5,000 you borrowed, so you have lost your entire $5,000 investment plus owe $1,000 more.