16 Replies to “Cash Account vs Margin Account – The Ultimate Guide”

  1. I like this way of money to be earned using this cash verse margin account. Gives you a break down how you can start account that allows you to start learning how to earn with small amounts of money you put in it. This has a lot of good information and catches your eye when reading the website. Has good content and helps others understand more what and how make your money grown in account like this.

  2. Thank you to give main strategies to get leverage in trading .I’m really interesting about starting trade,but I’ve some worries at all. Can you please add some mini video explaining more some ideas ?
    The way you explain is great,but curiously I would like to get more confidence when I have to sign and start my first session ,with low risk to lose my money
    Thank you !

    1. Hey and thanks for the feedback.

      I was actually thinking of adding video lessons to my articles in the near future. But for now, I only have written education. I just added some interactive quizzes at the end of the beginner and intermediate course. I hope that for now, you still can enjoy the education.

  3. Hi Louis,

    Can you please explain this part again? maybe with math:

    If a trader wants to use 200$ for 5 shares and then gets access to 1:2 leverage, it is not smart to use the entire 200$ to buy 10 shares instead. It is much better to scale down the money until it is the same amount of shares; so 100$ for 5 shares. Don’t increase position size, just decrease the price. Before entering think about a position size that you could do without margin and then do that with margin but for less money.

    Thank you!!

    1. Sure thing Maria.
      In that paragraph, I am trying to explain how to use leverage. Leverage allows you to trade with borrowed money. A 1 to 2 leverage would mean that you only have to pay $1 to control $2. So to buy one share of a $100 stock, you would only have to pay $50 with a leverage of 1 to 2.
      Most people that have access to such leverage use it the wrong way. They scale up their entire position size. Here is an example:
      XYZ is trading for $100 and you want to buy it. You have $10 000 in your account and you could buy 100 shares of XYZ. However, with a 1 to 2 leverage, you could buy 200 shares instead of only 100 shares. I recommend still only buying 100 shares though. The problem with buying 200 shares is that you thereby double your risk.
      I recommend using leverage to increase your overall buying power and not to increase the risk on a single position. If you have access to a 1 to 2 leverage but still only buy 100 shares, you could still use the other half of your account for other trading activities.
      In other words, don’t increase your risk just because you have access to leverage. Rather decrease the capital used per trade.
      I hope this makes sense. Otherwise, let me know.

  4. Louis this is a great explanation, I really was unclear about the 2 differences between a cash and margin account. I think as someone new to trading I think I’d prefer the lower risk of a cash account. Your comparison of the pros and cons was particularly helpful, thank you!

    However, a question, can you change your account type at a later date?

    1. Awesome to hear that my explanation could help you out. 

      Usually, brokers will require you to open a new account instead of changing your current account type. So often, you would have to allocate the money from your old account to the new account. But there are probably some brokers that allow you to change account type without having to create a new account.

  5. Hey there! Thanks for these detailed breakdowns of cash vs margin accounts. When I first heard of trading, it was the hardest concept to understand. Your guide has helped me get it and I really appreciate the breakdowns. I’ve decided that I like the cash route as it is lower risk. I’m still a bit shaky about this whole investing thing as I’m not a big risk taker in the first place but I’ve heard that you can make good money if done right so I want to try!

    Your site has helped me out a lot and I appreciate your time to write these detailed reports and guides.

    Marlinda

    1. Hi Marlinda,

      My tip for you would be to start out very small! In the beginning, there will be some volatility in your trading results. So make sure to not risk money that you can’t afford to lose. Alternatively, you could also start out by paper trading (trading with virtual money).

  6. Are there advantages to a cash/margin account, when you take into account what type of stock you want to buy? For example, if i want to purchase stock from Google or Apple (or the respective companies that own them), is there a better account for those types of stock. Or is all stock really just stock, and so it doesn’t matter?

    Thanks!

    1. Thanks for the question Cyrus. There isn’t really a difference between individual stocks in cash and margin accounts. The only thing that I could think off is that depending on your account size you might not be able to trade high priced stocks with size in cash accounts as small accounts won’t have the buying power to buy more than a few shares of $200+ priced stocks. However, generally speaking, it isn’t the case that certain account types are better suited for specific stocks.

  7. I have looked into this type of investing (margin), it is too risky for me at this time in my life. The idea of margin buying is still quite new to me and when I start making I will remember your site. A lot information to digest, so I will be back as soon as I am able to buy into this idea. Your site is clean and well designed.

  8. thank you louis for your knowledge of the margin vs cash acct. i am a options student, to which i am in simulator presently. i am still a little confused or disappointed, my trade personality is the do credit trades(shorting). with a cash acct, shorting is not allowed, with a margin acct, it is.
    the broker comes out ahead wether i lose or win in a trade. wasen,t there a time when there was a leverage acct choice? or am i thinking futures?
    with options, the trade is at least 30days, or if you desire to exist trade at a % profit. staying in a trade for 30days with a 8-10% fee from broker, will get up profit. its a hard decision. cash, no leverage. margain with leverage 2/1, with interest owed to broker. isn,t there a third choice?

    1. Thanks for your comment.
      You can only use leverage in margin accounts, not in cash accounts. So if you want to use leverage, you have to choose a margin account. I don’t know if you are talking about a specific broker. But the brokers that I know allow you to stay in your options positions as long or as short as you want to. It is not restricted to a minimum of 30 days. If I wanted to, I could open an option position and close it again immediately.

      Furthermore, if you only hold your positions for 30 days, the interest rates aren’t that bad. Like I mentioned in the article, a common figure for the margin rates is 8% annually. This means if you would hold your position for an entire year, you would have to pay 8% on the borrowed money. But if you only hold your position for 30 days, the interest is very small (about 0.5%). But note that you only have to pay interest if you borrow money. If you don’t trade with any borrowed money, you wouldn’t have to pay any interest at all.

      I hope this helps. Please let me know if you have any other questions or comments.

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