Robinhood, the popular online investment platform, has announced it is introducing margin trading in the UK. This feature allows investors to borrow money to enhance their trading activities. The decision comes after the company’s recent discussions with the Financial Conduct Authority (FCA), the UK’s financial regulator, and the subsequent approval of the product.
Margin trading, however, is not commonly practiced in the UK due to the associated risks to users. It is usually limited to high-net-worth individuals or businesses on certain platforms. Other firms that offer margin trading in the UK include Interactive Brokers, IG, and CMC Markets.
This announcement follows Robinhood’s recent introduction of a securities lending product in the UK, which allows users to earn passive income on their owned stocks. The company aims to increase its market share overseas and offers competitive interest rates for its margin loans, ranging from 6.25% for loans up to $50,000 to 5.2% for loans of $50 million and more.
Jordan Sinclair, president of Robinhood UK, stated that many potential users believe they don’t have access to more advanced products like margin trading. He added, “For the right customer this is a great way to diversify and expand their portfolio.”
While margin trading can potentially yield substantial profits if the value of the purchased asset increases significantly, it comes with significant risks, especially for retail traders. If the asset’s value drops, the losses can be quite drastic.
Robinhood ensures that customers do not invest more than they can afford to lose by implementing robust guardrails. The platform requires users seeking to trade on margin to have a minimum of $2,000 of cash deposited in their accounts. Users also have to opt-in to use the product, meaning they are not automatically enrolled for a margin account.
Robinhood also assures that its customers’ uninvested cash is protected up to $2.5 million with the U.S.’ Federal Deposit Insurance Corporation, providing another layer of protection for users.
