Cash Accounts and Margin Accounts

Scope. This article explains what the two account types are, what each permits, and what signing a margin agreement changes about the securities held in it. What margin is as a borrowing arrangement, how a maintenance call works and what forced liquidation means belong to Margin and Leverage in Pillar 29, as does the pattern day trader rule and what replaced it; this article does not repeat them. MarketClue is not a broker, opens no accounts, lends nothing and does not suggest which account type anyone should have. Regulatory figures are reported as what the rule requires, not as levels this portal endorses. United States, verified 16 August 2026.

The difference in what you can do is modest. The difference in what the firm can do with your securities is not.

The cash account

In a cash account, securities are paid for in full with settled funds. No credit is extended. Since May 2024 the United States has settled trades on a T+1 basis, so payment is due the business day after the trade.

Three restrictions follow from that and they surprise people.

Free-riding — buying a security, selling it before paying for the purchase, and using the sale proceeds to fund the original purchase. This is prohibited under Regulation T, and where it occurs the firm is required to restrict the account for 90 days, during which purchases must be funded with settled cash in advance. Note that the firm has no discretion here; the restriction is mandatory rather than a penalty the firm chooses to apply.

Good-faith and cash-liquidation violations follow the same logic — they arise from buying with funds that have not yet settled.

The practical consequence is a timing constraint rather than a prohibition: proceeds from a sale are not available to buy again until they settle, which is one business day rather than none.

The margin account

A margin account is opened by signing a margin agreement, and it permits the firm to extend credit against the securities held.

Firms routinely require more than these minimums — figures in the region of 30% to 40% maintenance are common — and a firm may raise its own requirement on a security or an account at its discretion. The regulatory numbers are floors, not the terms anyone is actually operating under.

What the margin agreement actually authorises

This is the part of the decision that is almost never the reason people make it, and it is the part with the longest consequences.

Securities held in a margin account serve as collateral for the loan the firm may extend. The agreement typically permits the firm to hypothecate them — pledge them as collateral for its own borrowing — and commonly permits the firm to lend them out to other market participants.

The consequence, stated plainly because it is the pillar's most under-appreciated fact. Fully paid securities in a cash account must be segregated by the firm and kept separate from the firm's own assets. Securities in a margin account may be used by the firm — pledged, lent, or otherwise deployed — under terms the customer agreed to when opening the account. The change is not to what the customer owns; it is to what the firm may do with it while the customer owns it, and to the character of the customer's claim if the firm were to fail. That second point is the subject of the next two articles and is the reason they follow this one. Two further observations, both factual. First, many people open margin accounts without intending to borrow at all — for settlement convenience, or because options or certain strategies require one — and thereby accept the collateral terms as a side effect of a decision made for another reason. Second, where a firm lends out a customer's securities, the revenue arising is the firm's unless the arrangement says otherwise, which connects directly to the securities-lending line in What a Brokerage Actually Does. MarketClue does not suggest which account type anyone should hold; the point is that the two decisions bundled into that click are separable in principle and are not presented separately.

What each account type is actually for

Neither is the safe option and neither is the sophisticated one, and framing them that way is the error.

A cash account constrains timing and keeps fully paid securities segregated. A margin account removes the timing constraint, permits borrowing, permits short positions, and changes the terms on which the firm holds the securities.

The features arrive as a bundle. A person who wants only the settlement convenience receives the collateral terms as well, because the agreement does not unbundle them. Some firms permit a customer to opt out of having their fully paid securities lent, and whether that option exists is a question of the specific agreement rather than of the rules — which is a thing worth knowing exists rather than a thing this portal advises anyone to do.