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The US-based investment platform stated that users would be able to leverage their existing assets as collateral to purchase additional securities. This rollout follows approval from the Financial Conduct Authority (FCA) after discussions between Robinhood and the UK financial regulator.
Margin trading, less common in the UK due to the associated risks, is typically limited to high-net-worth individuals or institutional investors. Other platforms that offer similar services in the UK include Interactive Brokers, IG, and CMC Markets.
The introduction of margin trading comes shortly after Robinhood launched a securities lending product in the UK in September, which allows users to earn passive income from stocks they own.
The platform is offering margin loans with interest rates ranging from 6.25% for loans up to USD 50,000 to 5.2% for loans exceeding USD 50 million. This is part of Robinhood’s broader strategy to increase its market presence internationally.
Associated risks
While margin trading offers the potential for increased returns, it also carries significant risks, especially for retail investors. Leveraging borrowed funds to trade magnifies both gains and losses, with potential for significant financial exposure if the value of assets declines.
Robinhood has implemented measures to mitigate these risks, requiring users to deposit a minimum of USD 2,000 in their accounts to access margin trading. Customers also need to opt-in to the service and meet specific eligibility criteria.
The platform has emphasized that margin investing is designed for more experienced traders, and not for novice investors. Additionally, Robinhood noted that customer funds are protected by the US Federal Deposit Insurance Corporation (FDIC) up to USD 2.5 million, providing an extra layer of security for users.
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