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As a small investor, borrowing money to invest is almost invariably a terrible, terrible idea, because any return you make on the investment will likely be canc
by vivekd 9y ago
As a small investor, borrowing money to invest is almost invariably a terrible, terrible idea, because any return you make on the investment will likely be cancelled out by the interest paid to borrow the money.
I just looked up margin interest rates, for loans of 10 000 or less (which is what we are likely talking about with robin hood) the interest rate is Base Rate + 1.25% which is 8.50% interest. I don't know many stocks you can buy even in the best of circumstances that will get you a guaranteed return of more than 8.5%. Moral of the story - robin hoods retail investors should not engage in margin trading.
- Ntrails 9y agoIs that Base Rate something specific to them? Because it's a goddamned travesty for a pretty well secured loan.
- thunderstrike 9y agoTake a look at these broker's rates for comparison: https://www.scottrade.com/investment-products/interest-margin-rates.html https://www.scottrade.com/investment-products/interest-margi... https://www.fidelity.com/trading/advanced-trading-tools/margin-trading https://www.fidelity.com/trading/advanced-trading-tools/marg...
- Ntrails 9y agoYeah. Then you compare it to what IBs are charging actual funds...
- sf_rob 9y agoWhere are you getting these numbers? Their rates appear to go from ~4.8-7.2%[1] Also, it should be noted that Gold is a flat fee based on account value brackets and margin brackets not a percent fee of your margin like every other brokerage. That means your effective margin rate can be much higher. e.g. if you borrow $100 for a $2000 account, you're looking at an effective margin rate of 72%. [1] https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal/RHF%20Retail%20Commisions%20and%20Fees%20Schedule.pdf https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal... (linked to from their FAQ[2], sorry for the sketch URL) [2] https://support.robinhood.com/hc/en-us/articles/214681823-Introducing-Robinhood-Gold https://support.robinhood.com/hc/en-us/articles/214681823-In...
- morgante 9y ago> I just looked up margin interest rates, for loans of 10 000 or less (which is what we are likely talking about with robin hood) the interest rate is Base Rate + 1.25% which is 8.50% interest. Is that from Robin Hood? If so it's a travesty specific to them. You can borrow from Interactive Brokers for 2.4%, which is a lot easier to overcome even with straight broad-market ETFs. [0] [0] https://www.interactivebrokers.com/en/index.php?f=interest&p=schedule2 https://www.interactivebrokers.com/en/index.php?f=interest&p...
- vivekd 9y agoNo it wasn't robin hood, it was just basic rates charged by another firm. I figured robin hood is going to charge the industry standard. But that 2.4 % interest rate is being charged daily on those loans so that's even scarier.
- morgante 9y agoUh, I think you don't understand how compounding works. It's not 2.4% a day. Do you know anything about finance?
- vivekd 9y agofrom the link >IB accrues interest on a daily basis and posts actual interest monthly on the third business day of the following month. from investopedia >Interest accrues on loans, such as a mortgage, or on savings accounts and investments. Daily accrual means interest amounts are added to the account balance every day. Interest can accrue on any time schedule; common periods include daily, monthly and annually it would be different if the rates were annual percentage rates, but your site doesn't specify that. no I don't know anything about finance but I got google.
- morgante 9y agoA little knowledge is dangerous. You found the right terms but totally missed the meaning. Daily accrual means that your interest for that day is calculated daily. It doesn't mean the interest rate is 2.4% a day. Did you even think about this logically? 2.4% a day would be 876% a year. That's obviously insane.