What is the difference between a Margin and Cash account?

Cash vs Margin Account: What’s the Difference?

When you apply for a brokerage account you may notice that there are two types of accounts that you may obtain. These account types determine what you can and cannot do on your account. But what are these account types and what does that mean for you as a trader?

Cash Account

A cash account is available for anyone over the age of 18 years old. These accounts have the following features:

• Unlimited Day Trading (in and out of a position on the same day)

• May not own short positions or borrow funds for investing

• Funds for trading are limited to the amount of cash that was sent to the account

• Have limited features with regards to exchanges (Limited to trading stocks, bonds, and forex)

Margin Account:

A margin account is available to those who are over the age of 21. These accounts have the following features:

• Limited Day Trading (3 times every 5 business days). Violating this rule will flag your account as a potential pattern day trader and you will be unable to buy into positions for a number of days.

  • Number of days the account is unable to buy into positions is determined based on the number of times the rule was violated

• Unlimited Day-Trading for accounts with a Net Liquidation Value of over $25,000 USD or currency equivalent

• Accounts with over $2,000 USD or currency equivalent may short positions and trade with leverage

• May trade in exchanges such as Options and Futures

If you are a trader who prefers to trade passively with no risk of borrowing interest rates, a Cash Account may be more suitable for you. If you are a trader who is less risk adverse and has a preference for larger returns over a shorter period of time, a Margin Account may be more suitable for you.