Margin Interest Calculator

Background.

Borrowing against shares is easy to start and easy to forget. A margin loan has no repayment schedule: the broker lends against the securities in your account, charges interest on whatever you owe, and keeps charging until you sell something or deposit cash. The cost builds quietly in the background of a portfolio, which is why it is worth putting a number on.

The arithmetic is simple interest: balance × annual rate × days ÷ the number of days the broker counts in a year. That last figure, the day-count basis, is easy to overlook. Some brokers divide the quoted rate by 360 rather than 365, so over a calendar year a quoted 10% costs about 10.14% of the balance. On a 20,000 debit held for a month the difference is a couple of dollars, but it is part of the true price of the loan, and the broker's margin agreement says which basis applies.

The bigger question is whether the borrowing pays. Interest is due whether the shares rise or fall. At 10% a year, anything bought on margin has to earn more than 10% just to cover the loan, and losses are magnified because the debt stays the same while the collateral shrinks. The disclosure statement FINRA requires brokers to give margin customers warns that you can lose more than you deposit, and that the firm can sell your securities without contacting you if your equity falls below its maintenance requirement.

What this estimate leaves out is the way a real statement is built. Interest accrues on each day's actual debit, which moves with every trade, deposit and dividend; rates are often tiered, falling as the balance grows; and interest that is charged to the account becomes part of the debit, so it then earns interest of its own.

What is margin interest calculator?

Margin interest is what a broker charges for lending you money against the securities you hold with it. It accrues on the debit balance, the amount you owe, at an annual rate that is often tiered so that larger balances pay less. The figure here is simple interest on a fixed balance for a stated number of days, using the day-count basis you choose, and it comes out in the same currency as the balance. It is the cost of the loan alone, separate from any gain or loss on the positions it paid for.

How to use this calculator.

1. 01Enter the borrowed balance: the margin debit shown on your statement, not the market value of your positions.
2. 02Enter the annual margin rate that applies to a balance of that size, taken from the broker's published rate table or your latest statement.
3. 03Enter how many days the balance will stay outstanding. For a monthly figure use the actual days in that month, anywhere from 28 to 31.
4. 04Set the day-count denominator to the basis your broker discloses, usually 360 or 365. If you cannot find it, run both; the gap between them is the uncertainty.
5. 05If you trade, deposit or withdraw during the period, split it into stretches with a steady balance, run each one and add the results.

The formula.

Interest = B × (r ÷ 100) × d ÷ D. B is the borrowed balance, r the annual rate in percent, d the number of days the money is owed and D the day-count basis, the number of days the broker treats as a year. The rate divided by D is the daily rate: 10% on a 360-day basis is 0.02778% a day, so each day costs about 5.56 on a 20,000 balance. Because every term is a straight multiplier, doubling the balance, the rate or the days doubles the interest. Switching D from 365 to 360 raises the charge by a factor of 365/360, roughly 1.4%. Nothing is compounded: the balance is treated as fixed for the whole period, with no interest added to it along the way, so for long periods the estimate runs below what a broker that posts interest monthly would charge. All four inputs must be greater than zero.

A worked example.

Frequently asked questions.

References& sources.

1. [1]FINRA Rule 2264, Margin Disclosure Statement.
2. [2]SEC Investor Bulletin, Understanding Margin Accounts.
3. [3]BIPM, The International System of Units (SI Brochure), 9th ed., version 3.01, coherent derived units and quantity equations.