Tthe Robinhood logo is parade on a smartphone screen.
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LONDON — Robinhood said Monday that it’s inventory out margin investing — the ability for investors to borrow cash to augment their trades — in the U.K.
The U.S. online investment platform express that the option would allow users in the U.K. to leverage their existing asset holdings as collateral to purchase additional safe keepings.
The launch of margin trading follows the recent approval of the product, after Robinhood held conversations with Britain’s monetary regulator, the Financial Conduct Authority (FCA).
Margin trading is a rarity in the U.K., where regulators see it as more controversial because of the chances involved to users. Some platforms in the country limit margin trading for only high-net-worth individuals or businesses. Other corporations that offer margin investing in the U.K. include Interactive Brokers, IG and CMC Markets.
The rollout comes after Robinhood debuted a protections lending product in the U.K. in September, allowing consumers to earn passive income on stocks they own, as part of the company’s behindhand bid to grow its market share abroad.
The stock trading app touted “competitive” interest rates with its margin lends offering. Rates offered by the platform range from 6.25% for margin loans of up to $50,000 to 5.2% for loans of $50 million and beyond everything.
Jordan Sinclair, president of Robinhood U.K., said that many customers feel they can’t access more pushed products like margin trading in Britain, as they’re typically reserved for a select few professional traders investing with the analogous ti of heavyweight banks JPMorgan Chase, Goldman Sachs, Morgan Stanley and UBS.
“There’s so many barriers to entry,” Sinclair told CNBC in an vet. “Ultimately, that’s what we want to break down all those stigmas and barriers to just basic investing roads.”
He added, “For the right customer this is a great way to diversify and expand their portfolio.”
A risky business
Investing on appropriate cash can be a risky trading strategy. In the case of margin trading, investors can use borrowed money to increase the size of their followings.
Say you wanted to make a $10,000 investment in Tesla. Usually, you’d have to fork out $10,000 of your own cash to buy that goats. But by using a margin account, you can “leverage” your trade. With 10x leverage, you’d only need to have $1,000 upfront to earn the trade, instead of $10,000.
That can be a lucrative strategy for professional traders, who can make even larger returns than on trite trades, if the value of the purchased asset rises significantly.
It’s a riskier path for retail traders. If the value of the asset you’re accepting on borrowed cash drops significantly, your losses will be dramatic, too.
Robinhood announced it was launching in the U.K last November, beginning up its app to Brits in March. At the time of launch, Robinhood was unable to offer U.K. users the option of margin trading, pending bull sessions with the FCA.
“I think with the regulator, it was just about getting them comfortable with our approach, giving them a rsum of our product in the U.S., what we’ve developed, and the eligibility,” Robinhood’s Sinclair told CNBC.
Sinclair said that Robinhood implemented fruity guardrails to ensure that customers don’t invest more cash than they can afford to lose when bounds investing.
The platform requires users seeking to trade on margin to have a minimum of $2,000 of cash deposited in their accounts. Buyers also have to opt in to use the product — they’re not just automatically enrolled for a margin account.
“There are eligibility criteria. There is a way to rethinking appropriateness of this product for the right customer,” Sinclair added. “Fundamentally, that’s a really important part of this artifact. We recognize it isn’t for the novice investor that’s just getting started on our customer.”
Robinhood says that its customers’ uninvested change is protected to the tune of $2.5 million with the U.S.’ Federal Deposit Insurance Corporation, which the firm says adds another fire of protection for users.