Cash Account vs Margin Account

Cash: what you have is what you get

A cash account lets you trade only with settled funds. No borrowing, no shorting, no leverage. Settlement was T+1 since May 2024 (was T+2): sell today, funds settle next business day. The account cannot go negative — your maximum loss is (almost) your deposit. Boring is a feature.

Margin: borrowing with strings

A margin account lets you borrow from your broker against holdings — leverage. Leverage multiplies gains AND losses, adds interest on the loan, and introduces the margin call: if account equity falls below maintenance requirements (~25-30% typical), the broker sells your positions WITHOUT asking, often at the worst moment. 1929, 2008 and countless personal accounts died this way.

The seduction of leverage

Leverage feels free until the first drawdown. At 2×, a 50% market drop is a 100% account wipeout — and markets have done 50% twice in 15 years (2008-09, 2020 COVID crash was -34% in weeks). The math of ruin is unforgiving: −50% requires +100% to recover. Beginners should run cash-only until they have survived at least one full drawdown cycle mentally.

Sources

• Margin AccountInvestopedia
• FINRA Margin RulesFINRA.org