Margin interest rates are a scam

When a broker charges you interest on your margin used, you are getting an extra hidden charge.

Brokers have this tricky wording in their lending rates that allows them to charge more than their stated interest rate.

Let’s look at Robinhood for example. They charge a “6.5% yearly interest rate calculated daily”.

The key phrase here is “calculated daily”. This phrase allows them to charge you more than 6.5%! Now we have to factor in that they’re charging you daily (365 times).

Here’s the equation to calculate the effective interest rate: (1+6.5%/365)^365-1= 6.71%

Here we see the actual interest charged is 6.71% rather than 6.5%.

All brokers use the same method of charging margin.

This is the hidden cost of using margin! It applies to any APR lending, hence why APR stands for Annual Stated Rate. What they state vs what they actually charge you is completely different!