Calculate margin interest from the amount borrowed, annual margin rate and days held, with daily interest, or solve for the rate, loan amount or days.
Margin Interest Formula
The following formula estimates simple margin interest on a constant debit using a 360-day basis. Select the basis used by your broker; the calculator also offers 365 days and a daily-compounding scenario. Actual tier, balance, rate and posting rules may differ.
- Where MI is total margin interest paid ($)
- B is the total margin borrowed ($)
- IR is the annual nominal interest rate as a percentage
- T is the number of days the margin is borrowed for
To estimate simple margin interest, multiply the margin borrowed by the annual rate divided by 100, divide by the selected 360- or 365-day basis, and multiply by the borrowing days. The example below uses 360 days. The daily-compounding scenario instead uses I = P × [(1 + r/b)^d − 1], where r is the annual decimal rate, b is the day-count basis and d is the borrowing period. Break-even return covers interest only.
Example Problem
How to calculate margin interest?
- First, determine the total amount of margin borrowed.
For this example, an investor is looking to borrow $30,000.00 on margin to purchase a stock for a short period of time.
- Next, determine the interest rate of the margin.
The brokerage that this investor uses charges a margin interest rate of 7%.
- Next, determine the total number of days the margin is borrowed for.
In this case, the investor only intends to hold the stock for 30 days.
- Finally, calculate the total margin interest paid.
Using the formula above, the margin interest is calculated to be:
MI = B * (IR/100) /360 * T
MI = 30,000 * (7/100) /360 * 30
MI = $175.00.
It would cost this investor $175.00 to borrow $30,000.00 for 30 days at a 7% interest rate.
