CashNews.co
Robinhood (HOOD), a US-based online investment platform, has begun the rollout of its margin investing feature in the UK. This move will allow investors to borrow cash against their existing asset holdings, enabling them to buy additional securities.
Unlike the US, margin trading is less common in the UK, where regulators view it as a high-risk activity. Typically, UK platforms limit such options to high-net-worth individuals or institutional clients, amid concerns about the potential risks to retail investors.
The introduction of margin trading on Monday is a milestone for Robinhood, which recently secured approval from the Financial Conduct Authority (FCA) after extensive discussions with the regulator.
Robinhood said it is offering competitive interest rates on margin loans. Rates are expected to start at 6.25% for loans up to $50,000 and drop to 5.2% for amounts exceeding $50m (£38m).
UK customers seeking to trade on margin will need to maintain a minimum of $2,000 in their accounts and actively opt in to the service.
The launch of margin trading comes on the heels of Robinhood’s launch of a securities lending product in the UK in September, where customers can earn passive income by lending out their stock holdings. Both moves are part of Robinhood’s strategy to broaden its market share internationally.
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Jordan Sinclair, president of Robinhood UK, said: “With the launch of margin investing, we’re giving our UK customers even more flexibility and tools to enhance their investing strategies. At Robinhood, we understand that investors want access to expand and diversify their portfolios at industry-leading rates, in an amazing user experience.”
What is margin trading?
Margin trading is a form of leverage that allows investors to borrow money to amplify their positions in the market. This can potentially result in higher gains, but it also increases the risk of substantial losses.
For instance, a margin trader who wants to invest $10,000 in Nvidia (NVDA) stock could use 10x leverage, requiring only $1,000 of their own money. While this boosts potential profits if the stock rises, it can lead to significant losses if the stock’s value falls.
GameStop phenomenon
Margin trading became a prominent feature during the 2021 “meme stock” craze, when traders on the Reddit (RDDT) forum WallStreetBets used platforms like Robinhood to drive up the prices of struggling stocks like GameStop (GME), creating a “short squeeze” that caught institutional investors by surprise.
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Robinhood made its name in the US by offering commission-free trading, disrupting the traditional brokerage model. Its user-friendly platform attracted millions of new, mostly young investors.
Robinhood has 24 million customers in the US and reported record revenues of $682m (£524m) in the second quarter of this year, with a net income of $188m.
The company expanded into the UK in March, introducing its commission-free trading platform and now adding new features like securities lending and margin trading.
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