UK users of Robinhood will be able to borrow money from the platform to trade on margin, following an update today.
Lending money to customers to trade on margin is one of the most common forms of revenue for brokers. This is another move from Robinhood, which recently launched a share lending program to try and generate revenue in an environment where commission-free trading revenues are hard to come by without payment for order flow.
Interestingly, there is a book titled Robin Hood, The Unknown Templar that suggests that the real Robin Hood stole from the rich and lent money to the poor as an “early kind of loan shark”.
Access to Robinhood margin trading will allow traders to borrow money using their existing portfolio as collateral. The platform has started rolling out the feature for some accounts today, with broader availability expected in the coming weeks.
Robinhood’s interest rates for approved customers range from 6.25% for balances up to $50,000. This falls to 5.2% for balances above $50 million.
Access to Robinhood margin investing is not automatic, with customers required to apply and meet eligibility requirements.
The full list of rates for approved customers is shown below:
- 6.25% for up to $50K
- 6.05% starting at $50K and up to $100K
- 5.75% starting at $100K and up to $1M
- 5.50% starting at $1M and up to $10M
- 5.45% starting at $10M and up to $50M
- 5.20% starting at and above $50M
These rates are a little cheaper than trading stocks on margin with CFDs. You can see from our CFD broker comparison that most brokers charge around 2.5% over/under SONIA for overnight equity positions. Which is currently 4.95%, so at 2.5% over, you’ll be paying 7.45% interest (per year) for longer-term positions.
Except, of course, with eToro, who currently charge a whopping 6.4% over SONIA, meaning paying, you’ll pay 11.35% ( or $1,135 on a $10,000 CFD position).
A similar position would only cost $625 through Robinhood.
Robinhood’s margin rates are roughly in line with Interactive Brokers, who’s range from 5.3% to 6.3%.
However, margin trading and CFDs do not come with the tax benefits of financial spread betting, where profits are free from capital gains tax.
Plus, you can’t trade UK stocks on Robinhood.
“Once a customer is approved to trade with margin, their rate is automatic based on the margin loan balance of their account,” the company said in a statement.
The introduction of Robinhood margin investing follows the relaunch of the firm’s UK app in March.
“With the launch of margin investing, we’re giving our UK customers even more flexibility and tools to enhance their investing strategies,” said Jordan Sinclair, President of Robinhood UK.
“At Robinhood, we understand that investors want access to expand and diversify their portfolios at industry-leading rates, in an amazing user experience.”
The company has also recently been exploring bringing commission-free trading of UK-listed stocks to the app.
“We are looking ahead to multi-currency wallet support and local execution, including the London Stock Exchange,” Robinhood Chief Executive Officer Vlad Tenev said in an interview with Bloomberg TV earlier this month.
“There’s been huge demand for options as well — options on US equities — because that’s just hard to come by here in the UK market.”
US-headquartered Robinhood launched in 2013. According to data from May, globally it had 24.1 million funded accounts and $129.6 billion assets under custody for clients.
As part of its UK growth drive, the firm has been in discussions with UK regulators about securing the necessary permissions for it to be able to offer and manage ISAs alongside general investment accounts.
In the US, the company has also recently expanded its business in areas such as retirement products and credit cards.
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