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It's not the most profitable way to make money as a financial institution. But it is a very safe way since there are basically collateral assets on hand that do
by jjeaff 6y ago
It's not the most profitable way to make money as a financial institution. But it is a very safe way since there are basically collateral assets on hand that don't have to be repossessed like a car or home.
This creates a mixed, more diverse portfolio with lower risk.
- owenversteeg 6y agoOn the contrary, it is enormously profitable. If a brokerage charges you 3%, their profit is 3% - cost to borrow money for them - any losses. Losses are rare, they occur once in a blue moon when a major market crash happens. The cost to lend money is currently extremely low (fed funds rate is nearly 0), so yes, they're absolutely printing money with their margin loans. To the tune of several hundred million dollars a year for IBKR, actually!