I'm thinking of getting a margin account with Interactive Brokers. Suppose I have a margin account at IB, and I have $26K to trade with. According to their website, the margin interest rate is 1.59%. So, if I were to make a day trade (meaning bought and sold in the same day), using $10000 ($5000 cash, $5000 loan), would IB automatically deduct the interest, which is 1.59% divided by 365, times the $5000 loan and also take back the money they loaned me on settlement day? Also, is there any general advice people can give me about using a margin account?
If you are doing a day trade, you are flat at the end of the day and won't be carrying a margin balance, hence 0% charged to you. Margin is buying power in excess of your account value. For example, if you have 2:1 margin and a $26k account, your effective buying power is $52k. If you purchase something for more than your account balance and it is not a day trade, you will be charged interest for borrowing that excess money. I would advise you not to make use of margin until you have demonstrated that you are profitable (especially during the recent volatility). If you must use it, set yourself a nice ultraconservative buffer (say 125% of your account balance). You don't want to be liquidated involuntarily because you were fully margined and on the wrong side of some news event.