Q&A: How is margin interest calculated?
April 11, 2007 – 11:04 pmIf you're new here, I suggest you subscribe to my RSS feed. or bookmark this blog. You'll be able to easily keep up to date with new posts. Thanks for visiting!
Cluj wrote:
I read your article on margin. I have a question. The interest rate that you have to pay for a margin purchase, do you have to pay that no matter how long you hold the stock. Say I purchase 3000 bucks over my cash holdings at an interest rate of 7 percent. Do I automatically owe 210 no matter if it is just a daytrade or does it act like a bond and charge like 1.75 % each quarter.
I guess I should have been more clear in the original post. Generally, margin interest calculated mostly depends on your broker. Most brokers should charge interest the following way:
(interest rate/365 days)*(amount being borrowed)*(number of days borrowing funds)
At 7% for $3000 you get (0.07/365)*($3000)*(days). You’ll only pay 7% exactly if you hold onto the loan for 1 year. If you’re daytrading the interest charge is minimal. As long as your holdings beat 7% annually, you “win” in the sense that you came out ahead using someone else’s money.
