A cash account settles trades with your own cash; a margin account lets you borrow from the broker to buy. Margin multiplies gains — and losses. Here is the complete comparison.
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Cash Account
You can only buy with cash already in the account. Simple, no interest, no forced-liquidation risk beyond your balance. Ideal for most long-term investors.
Margin Account
You trade with borrowed funds; the broker lends against your securities. More capital, but interest, margin calls and forced selling are real risks.
Key Differences
- Borrowing: cash = none; margin = yes.
- Risk: margin can exceed your deposit (losses can exceed funds).
- Shorting/options: usually need margin approval.
- Rules: margins have maintenance requirements.
Which Should You Use?
Beginners and long-term investors: a cash account. Experienced traders who understand leverage: margin — used sparingly.
FAQ
Can I lose more than I deposit with margin?
Yes — that is the key risk; margin calls can force losses beyond deposits.
Do margin accounts charge interest?
Yes, on the borrowed amount.
Related: Advanced Trading and Position Sizing.