When someone trades stocks on margin, he is trading with money or assets borrowed from his broker. Before this can happen, a person must set up a margin account. All brokers require a minimum deposit, which varies.

The margin rate is simply the amount of interest that is charged on a loan for a margin account. Rates vary between brokers. Also, larger loans will sometimes enjoy lower rates. For instance, if a person borrows under $10,000 for a trade or purchase, he might have a rate of 6.5 percent. If he was to borrow $100,000 or more, the rate might drop to five percent.

Considering Margin Rates before Borrowing

If you are considering borrowing money from a broker, shop around. Rates between brokers can vary widely. Two or three percentage points may not seem like much, but can make a big difference over time, especially on larger debit balances.

Some brokers will offer many "bells and whistles" to their clients that are seemingly free, but if you are paying a margin rate of eight percent, while you could only pay five percent elsewhere, is the "bell or whistle" really free?