By laksh5382 
The Robinhood logo appears on the smartphone screen.
Rafael Henrique | Sopa Images | LightRocket | getty images
London – Robin Hood On Monday it said it was launching margin investing – the ability for investors to borrow cash to grow their business – in the UK.
The US online investment platform said the option would allow users in the UK to leverage their existing asset holdings as collateral to purchase additional securities.
The introduction of margin trading follows Robinhood’s recent approval of the product following negotiations with the UK financial regulator, the Financial Conduct Authority (FCA).
Margin trading is rare in the UK, where regulators consider it more controversial due to the risks associated with users. Some platforms in the country limit margin trading only to high-net-worth individuals or businesses. Other firms offering margin investing in the UK include Interactive Brokers, IG And CMC Market,
The rollout comes after Robinhood launches securities lending product in UK In September, as part of the company’s latest bid for growth, it allowed consumers to earn passive income on its stock. Its Market share abroad.
The stock trading app promoted “competitive” interest rates with its margin loan offering. Rates offered by the platform range from 6.25% for margin loans up to $50,000 to 5.2% for loans of $50 million and above.
Jordan Sinclair, president of Robinhood UK, said many customers feel they cannot access more advanced products such as margin trading in Britain, as they are typically reserved for a select few professional traders such as heavyweight banks. JPMorgan Chase, Goldman Sachs, Morgan Stanley And ubs,
“There are a lot of barriers to entry,” Sinclair told CNBC in an interview. “Ultimately, we want to reduce all those stigmas and barriers to just basic investment tools.”
“For the right client this is a great way to diversify and expand their portfolio,” he said.
a risky business
Investing on borrowed cash can be a risky business strategy. In case of margin trading, investors can use borrowed funds to increase the size of their trades.
Let’s say you wanted to invest $10,000 in Tesla. Typically, you would have to spend $10,000 of your own cash to buy that stock. But by using a margin account, you can “leverage” your trading. With 10x leverage, you will only need an advance of $1,000 instead of $10,000 to trade.
This can be an attractive strategy for professional traders, who can earn higher returns than normal trades if the value of the purchased asset increases significantly.
This is a risky path for retail traders. If the value of the property you are purchasing on borrowed cash decreases significantly, your loss will also be dramatic.
Robinhood announced it was launching in the UK last November and opening its app to Brits in March. At launch, Robinhood was unable to offer UK users the option of margin trading, pending discussions with the FCA.
“I think with the regulator, it was just about getting them comfortable with our approach, giving them the history of our product in the U.S., what we’ve developed, and the eligibility,” Robinhood’s Sinclair told CNBC.
Sinclair said Robinhood has implemented strong guardrails to ensure that customers do not invest more cash than they can afford to lose when making margin investments.
Users wishing to trade on margin on the platform are required to deposit a minimum of $2,000 cash into their account. Clients must also opt in to use the product – they are not just automatically enrolled for a margin account.
“There are eligibility criteria. A way to review the suitability of this product for the right customer,” Sinclair said. “Fundamentally, this is a really important part of this product. We recognize that it is not for the novice investor who is just starting out as our client.”
Robinhood says its customers’ uninvested cash is safe up to $2.5 million with the U.S. Federal Deposit Insurance Corporation, a move the company says adds another layer of protection for users.