Cash account vs margin account.
In plain English
The two basic brokerage account types differ in whether you can borrow. In a cash account, you buy investments only with the money you have deposited, and you must wait for trades to settle before reusing the funds. A margin account lets you borrow from the broker against your holdings to buy more, using leverage. Borrowing magnifies both gains and losses, charges interest, and exposes you to a margin call, a demand to add money if your holdings fall. A cash account is simpler and safer; a margin account adds power and real risk.
01Why it matters
Choosing a margin account means you can borrow to invest, which magnifies losses and adds a margin-call risk, so understanding the difference prevents taking on leverage unintentionally.
02The math, step by step
With 5,000 dollars in a margin account, you borrow another 5,000 to buy 10,000 dollars of stock. A 20 percent drop cuts your position to 8,000 dollars, but the 5,000 loan remains, so your own stake falls from 5,000 to 3,000, a 40 percent loss.
03What this is NOT
A margin account is NOT just a paperwork option. It lets you borrow and use leverage, which magnifies losses and can trigger a margin call, unlike a cash account that uses only your own money.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice