Robinhood rolls out high-risk margin trading in the UK after getting regulator nod

LONDON — Robinhood said Monday that it's rolling retired borderline investing — the quality for investors to get currency to augment their trades — in the U.K.

The U.S. online concern level said that the enactment would let users successful the U.K. to leverage their existing plus holdings arsenic collateral to acquisition further securities.

The motorboat of borderline trading follows the caller support of the product, aft Robinhood held conversations with Britain's fiscal regulator, the Financial Conduct Authority (FCA).

Margin trading is simply a rarity successful the U.K., wherever regulators spot it arsenic much arguable due to the fact that of the risks progressive to users. Some platforms successful the state bounds borderline trading for lone high-net-worth individuals oregon businesses. Other firms that connection borderline investing successful the U.K. see Interactive Brokers, IG and CMC Markets.

The rollout comes aft Robinhood debuted a securities lending merchandise successful the U.K. successful September, allowing consumers to gain passive income connected stocks they own, arsenic portion of the company's latest bid to turn its market stock abroad.

The banal trading app touted "competitive" involvement rates with its borderline loans offering. Rates offered by the level scope from 6.25% for borderline loans of up to $50,000 to 5.2% for loans of $50 cardinal and above.

Jordan Sinclair, president of Robinhood U.K., said that galore customers consciousness they can't entree much precocious products similar borderline trading successful Britain, arsenic they're typically reserved for a prime fewer nonrecreational traders investing with the likes of heavyweight banks JPMorgan Chase, Goldman Sachs, Morgan Stanley and UBS.

"There's truthful galore barriers to entry," Sinclair told CNBC successful an interview. "Ultimately, that's what we privation to interruption down each those stigmas and barriers to conscionable basal investing tools."

He added, "For the close lawsuit this is simply a large mode to diversify and grow their portfolio."

Investing connected borrowed currency tin beryllium a risky trading strategy. In the lawsuit of borderline trading, investors tin usage borrowed wealth to summation the size of their trades.

Say you wanted to marque a $10,000 concern successful Tesla. Usually, you'd person to fork retired $10,000 of your ain currency to bargain that stock. But by utilizing a borderline account, you tin "leverage" your trade. With 10x leverage, you'd lone request to person $1,000 upfront to marque the trade, alternatively of $10,000.

That tin beryllium a lucrative strategy for nonrecreational traders, who tin marque adjacent larger returns than connected accustomed trades, if the worth of the purchased plus rises significantly.

It's a riskier way for retail traders. If the worth of the plus you're buying connected borrowed currency drops significantly, your losses volition beryllium dramatic, too.

Robinhood announced it was launching successful the U.K past November, opening up its app to Brits successful March. At the clip of launch, Robinhood was incapable to connection U.K. users the enactment of borderline trading, pending discussions with the FCA.

"I deliberation with the regulator, it was conscionable astir getting them comfy with our approach, giving them a past of our merchandise successful the U.S., what we've developed, and the eligibility," Robinhood's Sinclair told CNBC.

Sinclair said that Robinhood implemented robust guardrails to guarantee that customers don't put much currency than they tin spend to suffer erstwhile borderline investing.

The level requires users seeking to commercialized connected borderline to person a minimum of $2,000 of currency deposited successful their accounts. Customers besides person to opt successful to usage the merchandise — they're not conscionable automatically enrolled for a borderline account.

"There are eligibility criteria. There is simply a mode to reappraisal appropriateness of this merchandise for the close customer," Sinclair added. "Fundamentally, that's a truly important portion of this product. We admit it isn't for the novice capitalist that's conscionable getting started connected our customer."

Robinhood says that its customers' uninvested currency is protected to the tune of $2.5 cardinal with the U.S.' Federal Deposit Insurance Corporation, which the steadfast says adds different furniture of extortion for users.