The interest charged on a margin loan, accrued daily on the debit balance at a tiered rate that falls as the borrowed amount rises.
It is charged on the debit balance, not on position value, and it accrues every calendar day the loan is outstanding including weekends. Rates are typically a benchmark rate plus a spread, with the spread narrowing at higher balances.
For a day trader who is flat by the close the cost is negligible. For a leveraged position held for months it is a real hurdle the position must clear before it makes anything.
Example: a $50,000 debit at 9.5% costs about $13.01 a day, roughly $396 a month or $4,750 a year. A leveraged long must gain 4.75% on the borrowed portion annually just to break even against the interest, before commissions and taxes.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
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