Margin Interest Calculator

The calculation itself

Loan balance times the annual rate, divided by 360, accrued each day the loan is open. The 360-day year is the banker's convention, the same one discount notes use.

The consequence is that a quoted rate understates the annual cost slightly: you are charged 365 days of interest at a rate divided by 360. An 8% quote works out near 8.45% effective.

The figure worth reading, though, is the break-even move — total interest as a share of the position. That is how far the holding must rise before the borrowing has paid for itself.

In practice

A $10,000 loan at 8% accrues $2.22 a day. Over 30 days that is $66.67; over a full year, $811.11.

Against a $20,000 position, thirty days of interest is a 0.33% break-even — trivial. Held for a year it becomes 4.06%, which is no longer trivial: the position must rise more than four percent before the leverage has earned anything.

Measured against your own $10,000 of equity rather than the position, that year of interest is 8.11% — the cost of the borrowing expressed as a drag on the capital actually at risk.

None of this appears beside the holding on a statement. Interest is reported separately, as an account charge, which is precisely why the break-even move is worth calculating deliberately.

Where the figure deceives

Rates are tiered by balance and vary widely between brokers — large loans pay materially less than small ones, and the spread between the cheapest and dearest brokers is measured in whole percentage points rather than basis points.

Unpaid interest is generally added to the loan, so it compounds. On a position held for years without paydown, the loan grows on its own and takes the call price up with it.

The rate is also not fixed. It moves with the benchmark, usually without notice, which makes a long-held margin position a floating-rate liability against a volatile asset.

This assumes a constant balance. Adding to or paying down the loan changes the daily accrual from that day forward, so a real statement will not match a single-balance calculation.

Acting on it

Calculate the break-even move over the period you actually intend to hold, and compare it against what you expect the position to do. If they are close, the leverage is not earning its keep.

Compare broker rates before assuming they are similar. On a large balance the difference is worth more than most trading edges.

Pay the interest rather than letting it capitalise, if the account allows it. Compounding on a loan secured against a falling asset is the worst version of this arrangement.