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Margin Trading: Which Online Broker Offers You The Best Rate?

With commission-free trading, you might think all brokers are the same in costs. But keep in mind there are still other fees to consider and not all brokers will charge the same. For margin trading, the difference in margin rates can be a bigger cost than the commission you’ve been freed from.




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Margin trading is best used by more experienced investors. Using your stock as collateral to buy more stock is a great way to juice up returns. But extra rewards don’t come without extra risk. The losses can also multiply quickly. Brokers will require some extra paperwork to open an account approved for margin trading to make sure you understand the risks.


But a margin account doesn’t just have to be for margin trading. If you’re fully invested and need cash for other reasons, many brokers allow you to borrow funds easily. And as long as you maintain a proper ratio of borrowed funds to account value, the repayment offers flexibility.

That could fund real estate transactions, kids’ college and travel with lower rates than a credit card and less hassle than a home equity line of credit.

Charles Schwab (SCHW) and Fidelity, for example, even provide debit cards or checks to easily access funds. They also provide videos explaining the rules of margin trading.

Such account features could influence customers’ ratings of their brokers for margin trading, along with the interest rate charged.

Lowest Margin Rates

Of the 10 firms studied in IBD’s ninth annual survey of online brokerage customers, the five Best Online Brokers  for Margin Investing/Margin Interest Rate were Tastyworks, Interactive Brokers, Robinhood, Charles Schwab and TD Ameritrade. The rankings are based on how the brokers’ customers rated them on the margin investing attribute.

Looking at these five firms, plus Fidelity — a Best Online Broker overall — Interactive Brokers (IBKR) comes in with the lowest rates as of January 2021. Whether using Interactive Brokers Lite or Interactive Brokers Pro, your margin trading costs will be less than at IBD’s other top online brokers.

For lower debit balances, the difference in rates is dramatic. For a $10,000 debit balance over a year’s time, Interactive Brokers could save you nearly $700 in your margin trading over Charles Schwab’s TD Ameritrade.

The difference between rates at higher balances might be fewer basis points but can be considerable in absolute dollars. Once you get to balances of over $100,000 or $1 million, you could be looking at a five-figure difference.

Robinhood (HOOD) also comes in pretty low. With their Gold Pricing, you pay $5 per month. That gets you 30 days of access to margin and covers the first $1,000. Beyond that, it’s a flat 2.5% margin rate.

The table below can give you a starting point in your research. The information came from websites of TD Ameritrade, Fidelity, Charles Schwab, Tastyworks, Robinhood and Interactive Brokers at the beginning of 2021. They’ve been updated since then but only Interactive Broker’s changed with a drop of three basis points for the lower tiers. Robinhood’s last update was in December 2020 and the remainder have held their rates steady since March 2020. These rates can change at any time.

Can You Negotiate A Lower Margin Rate?

As with most things, you might be able to negotiate a lower rate than what is posted on the website. TD Ameritrade and Charles Schwab both list on their websites to make a phone call for rates on debit balances of $500,000 or more.

With brokers constantly trying to lure accounts to their platforms, a phone call might be all it takes to get a more competitive rate if your broker is facing the alternative of losing your business.

Why Pay More For Margin Investing?

It might seem easy enough to just go with the broker with the lowest margin rates. But there are other factors to consider. If you don’t use margin trading or can’t because you’re trading in retirement accounts, the lowest rates aren’t really a factor for you.

You might also decide that you prefer other features of one broker over another. The educational resources of TD Ameritrade, the options trading platform of Tastyworks, the research tools of Fidelity or the retirement planning of Schwab might lure you to stay with a broker despite the lower rates at Interactive Brokers. But with the table above, at least you’ll know how much you’re paying for your preferred experience.

Follow Nielsen on Twitter at @IBD_JNielsen.

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