Interactive Brokers margin rates

Margin trading - borrowing money from your broker to buy more assets than you could otherwise afford - is popular, but it's not available at all brokers, and margin interest rates can vary widely.

You're looking in the right place, though, as Interactive Brokers offers margin trading and has low margin rates. Read on for details, or simply click to open your Interactive Brokers account.

Interactive Brokers is great for margin trading

[Broker name] is great for margin trading

Adam Nasli

Trading • Safety • Market Analysis

I bring extensive financial expertise as one of BrokerChooser's earliest team members. Personally, I tested nearly all 100+ brokers on our site, opening real-money accounts, executing trades, assessing customer services, and providing firsthand assessment. My professional background includes roles in the banking sector and a degree from Central European University, where I teach finance. My passions lies in in-depth research of the financial industry, building trading algorithms, and managing long-term investments.

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Adam Nasli

Trading • Safety • Market Analysis

Want to trade big with little money? I tested Interactive Brokers's margin trading conditions for you using real money, and I liked what I saw:

• Interactive Brokers's margin rates are low.
• Stock and ETF trading fees at Interactive Brokers are low.
• Margin trading involves borrowing money from your broker to increase your exposure.
• Are there better margin trading platforms than Interactive Brokers? Check our toplist.

Before we begin, let's see if Interactive Brokers is available in your country:

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To be able to trade on margin, you have to open an Interactive Brokers margin account. This is a different type of account from a cash account, even though it looks the same and has the same functionalities; for example, charting, search tools and customer support channels are identical.

To open a margin account, you need to meet a different set of criteria than in the case of a cash account. For starters, US regulations prescribe a $2,000 minimum deposit if you want to trade on margin. Additionally, as margin trading basically involves IBKR lending you money, you need to go through various legal and tax details before you can start trading.

Types of margin accounts at Interactive Brokers

Interactive Brokers provides two types of margin accounts:

• a rule-based account called 'Reg T' and
• a risk-based account called 'Portfolio Margin'.

The difference between the two accounts is how margin requirements are calculated.

• If you have a 'Reg T' account, margin requirements are calculated based strictly on general rules set by by the US Federal Reserve Board, regardless of the size and quality of your portfolio or your risk profile.
• If you have a 'Portfolio Margin' account, margin requirement calculations are based on a broader view of your portfolio. This means calculations based on a series of hypothetical worst-case market scenarios and how these would affect your portfolio. Generally, a well-balanced and diversified investment portfolio will result in more lenient margin requirements if you opt for a Portfolio Margin account.

So what are margin rates? Margin rates, sometimes called debit rates, refer to the interest rates charged by brokers when you borrow money to buy and sell stocks, ETFs (exchange-traded funds) or options on margin.

Each brokerage sets its own margin rates, but generally margin rates are closely tied to the benchmark interest rate of the currency in which you borrow. If your broker lends you USD, the margin rate will most often be the US interest rate plus a markup that the broker adds.

Brokers often have a tiered system for margin rates, depending on the amount you borrow: the more money the broker lends you, the lower the margin rate is. Some brokers also charge different margin rates for different types of trading accounts. Typically, a standard account will have higher rates than a premium account. The rates BrokerChooser quotes refer to standard accounts.

Most brokers calculate the margin rate on a daily basis, but the amount you owe them is charged to your account once a month. Brokers are required to disclose their margin rates; some do so citing an annual percentage rate while others will display it in swap points. Whichever it is, just keep in mind that margin rates can change rapidly without advance warning from your broker.

Interactive Brokers margin rate tiers

Interactive Brokers's margin rates are one of the best in the industry for IBKR Pro customers. However, if you choose the IBKR Lite plan, you'll be charged a higher annual rate – for example, the markup is 2.5% for IBKR Lite under $100k, while it's 1.5% in the case of IBKR Pro.

Margin rates are lower for higher debit balances.

Margin rates vary based on the amount and the currency of the borrowed money.

If you use the IBKR Pro account, the markup above the benchmark interest rate in the currency of your choice will be typically 0.75-1 percentage points lower if you hold a high debit balance. In most currencies, this would mean a 1.5% markup for account balances in the lowest tier and a 0.5% markup for those in the highest tier.

By contrast, if you use the IBKR Lite account, you'll typically face a uniform markup regardless of your account balance, usually in the range of 2.5-4%.

Margin rates on short selling

Margin rates can also apply when you engage in short selling. Short selling means that you borrow shares from your broker and sell them with the expectation that the share price will decline. You will then repurchase the shares at a lower price, return them to the broker and pocket the price difference as your profit.

The margin rate for short selling is the interest rate charged by the broker on the borrowed funds used to facilitate the short sale. It is similar to the margin rates for simple stock, ETF or options trading.

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Margin rates are the single most important item that influences your margin trading profits, but trading fees and other regular or one-off charges can also impact your overall trading costs.

Interactive Brokers has low stock and ETF trading fees overall. See details of this and other fees charged by Interactive Brokers and some close competitors in the table below. (Trading fees cited here refer to a $2,000 trade.)

Trading on margin means borrowing money from your broker to buy stocks, ETFs or options. But why would you do that? Basically, it increases your 'buying power', allowing you to open larger trading positions than you could otherwise afford with just the cash in your brokerage account. Just mind the risks, as any losses will also be magnified in the same way that gains are amplified.

At brokers regulated in the US, you need to open a margin account to be allowed to trade on margin. The mandatory minimum deposit for margin accounts is $2,000. Margin trading is governed by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and Regulation T, also known as Reg T, a rule by the US Federal Reserve Board.

Under Regulation T, the initial margin for most stocks is 50%. This means that you must put up at least 50% of the purchase price in cash, while the remaining 50% can be borrowed from the broker. Brokers can only require initial margins that are higher than this.

Reg T also stipulates that short selling requires a deposit equal to 150% of the value of the position at the time the short sale is executed. This 150% includes the full value of the short sale (100%), plus an additional margin requirement of 50%.

Why is Interactive Brokers's margin rate so low?

IBKR has a low margin rate because they make money on a number of other services they provide. These include monthly fees on IBKR Pro, subscription to market data, inactivity fees and others. This allows them to cut costs on other parts of their service, like providing loans for margin trading.

How does IBKR charge margin interest?

The interest margin is accrued daily, but it is charged monthly, on the third business day of the following month.

Is margin interest charged daily at Interactive Brokers?

No, it is charged monthly, on the third business day of the following month. However, it is accrued on a daily basis, meaning that it adds up each day.

How does Interactive Brokes calculate margin rates?

Interactive Brokers calculates margin rates by setting a reference benchmark rate for each currency (updated regularly), to which it adds a mark-up.

• For IBKR Lite customers, the mark-up is the same regardless of the borrowed amount (e.g. 2.5% in the case of USD).
• For IBKR Pro, the mark-up is lower and changes depending on the amount involved, decreasing as the size of the borrowed amount goes up. For example, for USD it is +1.5% for amounts under $100,000, while above $200 million it is just 0.5%.

Interactive Brokers: further reading

• Interactive Brokers review
• How to trade after hours on Interactive Brokers
• How to buy ETF on Interactive Brokers
• Can you buy Bitcoin on Interactive Brokers?
• How to use Interactive Brokers for Paper Trading
• How to withdraw funds from Interactive Brokers
• How to convert currency on Interactive Brokers?
• How to change trading permissions on Interactive Brokers?
• What is the cost of buying US stocks at Interactive Brokers?
• How to download Interactive Brokers's TWS?
• Interactive Brokers fees explained
• Interactive Brokers account opening
• Is Interactive Brokers good for beginners?
• Is Interactive Brokers free?
• Can you trade options at Interactive Brokers?
• Interactive Brokers minimum deposit