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I really like [name_f]Arabella[/name_f] [name_f]Grace[/name_f] [name_f]Margaret[/name_f]! Since they’re honor names, I definitely think that it’s fine for her to have two middles while [name_f]Caroline[/name_f] only has one. You can interpret it this way as well: [name_f]Elizabeth[/name_f] contains two names, [name_f]Eliza[/name_f] and [name_f]Beth[/name_f]. I would avoid AML, because that association would bother me too.
I think it would be just fine to have daughters with one & two middle names, especially as both [name_f]Grace[/name_f] & [name_f]Margaret[/name_f] are honor names.
[name_f]Arabella[/name_f] [name_f]Grace[/name_f] [name_f]Margaret[/name_f] is lovely indeed, and I actually really prefer the [name_f]Grace[/name_f] in there.
I’d have to agree. If [name_f]Arabella[/name_f] [name_f]Margaret[/name_f] would lead to negative associations from her initials then I would go with [name_f]Arabella[/name_f] [name_f]Grace[/name_f] [name_f]Margaret[/name_f] (which is lovely btw).
I strongly believe it won’t lead to any problems down the road with [name_f]Caroline[/name_f] realizing her sister has an extra middle name compared to her. Especially for the fact that they’re honor names. 
Arabella Grace Margaret is adorable and I think it’s really cute using both grandmother’s names as middle names.
I really don’t think giving your daughter two middles when your first daughter only has one would be a problem, as I know plenty of families who have kids with names like this - my own siblings and I included, and no one has ever really minded. Besides, I’d be bothered by the association with initials AML too.
If you’re really reconsidering and want just one middle name, Arabella Grace would be really beautiful as well.
I agree with the previous posters. Both [name_f]Arabella[/name_f] [name_f]Margaret[/name_f] and [name_f]Arabella[/name_f] [name_f]Grace[/name_f] [name_f]Margaret[/name_f] are beautiful, but the sad connection with AML initials for your family definitely makes me think that the combo with [name_f]Grace[/name_f] is right for you.
I don’t think the middle name disparity between siblings is a big deal — my siblings and I are like this too — but if it really bothers you or your older daughter, could you add a second middle for her too? [name_m]How[/name_m] old is she? Could she even help pick her own second middle?
Statistically the eldest is more likely to have a higher IQ, so this seems like a fair deal! 
(I wouldn’t worry and if your eldest is concerned, you could perhaps let her choose an extra middle name even if you don’t officially change it. I would think she’d only care while she was a young girl.)
Thanks so much for all the great feedback!! Didn’t want to create any comparison or jealousy but I think we’ll go for the 2 middle names!