Cash Account vs. Margin Account: What's the Difference?

If you're left a bit baffled by the differences between brokerage accounts, never fear: Here's a quick rundown of what they are and what they do.

Cash account
This type of account asks you to deposit cash, and then you can use that cash to buy stocks, bonds, mutual funds, or other investments. It's not much more complicated than that.

Margin account
In a margin account, the cash and securities in your account act as collateral for a line of credit that you take out from the brokerage in order to buy more stock. The interest rates that brokers charge are lower than typical credit card rates, but they do mean you'll need to earn a much higher return on your investments than you would if you were only investing with your own cash. We generally counsel against using margin, but that doesn't mean that getting a margin account is automatically a bad idea.

Option account
This type of account allows you to trade options, which is a much riskier business than stocks. In general, we believe most investors don't need to trade options, although again, having an account that allows you to trade options isn't automatically bad.

IRA account
Hey! We don't counsel against this one! Check out our handy 60-second guide for tips on how (and why) to open a basic IRA. Or if you want all the nitty-gritty details on the different kinds of IRAs, see our four-step guide.

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  • Report this Comment On March 08, 2011, at 11:28 AM, prginww wrote:


    I've just been invited into MF Options Trading, which I am quite keen on but how does that square with the statement below?

    'This type of account allows you to trade options, which is a much riskier business than stocks. In general, we believe most investors don't need to trade options...'

  • Report this Comment On April 02, 2012, at 6:11 AM, prginww wrote:

    Why the fear re:EFTs

  • Report this Comment On June 29, 2013, at 10:37 AM, prginww wrote:

    I just joined and the Natural gas company used in the video is not shown any where?

  • Report this Comment On August 01, 2016, at 6:26 PM, prginww wrote:

    Ok, I have never bought or sold a stock in my life!!!

    So, where Do I Begin? Please make it elementary

    For this Unsavvy customer. I am 78 years old. I invested my $37,000. IRA With a real estate company (Berthel Fisher Company) and have lost all but $9,000. I am anxious about investing, but really need to create more income for my last few years. David, you investments seem sound.. What and how do I get started. How do I go about buying a stock? It would be great if you would choose some for me. However, I only have$5,000. to invest. Please help!!!

    Thank you,

    Janice Martin-Peers

  • Report this Comment On September 28, 2016, at 7:50 PM, prginww wrote:

    I am in the same boat with you Janice. I know nothing about investing but would sure like to

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