Cash account vs margin account: what’s the difference?
In a cash account you pay for every purchase in full with settled cash; US stock trades settle one business day after the trade (T+1). In a margin account the broker can lend you part of the price, using the securities in the account as collateral. Many low-priced or very volatile stocks cannot be bought on margin at all.
Opening a margin account does not force you to borrow: if you only spend your own cash, there is no loan and no interest. The loan starts when you buy more than your cash covers. New to placing orders? See how to buy US stocks.
- Buying power
- What you can buy with your cash plus what the broker will lend. With 50% initial margin, $10,000 of equity gives up to $20,000 of stock buying power.
- Equity
- The market value of your holdings minus the margin loan: the part that is really yours.
- Margin loan (debit balance)
- What you owe the broker. It does not shrink when the stock falls, and it accrues interest.
Initial margin vs maintenance margin: the 50% and 25% rules
Two numbers govern a margin account. Initial margin is the share of a purchase you must pay yourself: under the Federal Reserve’s Regulation T, 50% for most stocks, so you can borrow up to half. Maintenance margin is the minimum equity you must keep afterwards: FINRA requires at least 25% of the market value of the stocks you hold.
Brokers can and often do set higher house requirements, such as 30% or more, and higher still for volatile or concentrated positions, and they can raise them at any time without advance notice. Your broker’s numbers, not the regulatory minimums, decide when you get a margin call.
Hypothetical: you deposit $10,000 and buy 400 shares at $50, a $20,000 position, borrowing $10,000. Your equity is $10,000, 50% of the position, as in the first bar of the drawing at the top of the page.
How margin magnifies gains, losses and costs
With half the money borrowed, every move in the stock counts twice on your own money. In the drawing below, a 10% rise makes the position $22,000 and your equity $12,000: +20%. A 10% fall costs 20%. A 50% fall leaves the stock worth $10,000, exactly the loan: your money is gone, and the loan is still owed.
Interest comes on top. Brokers charge interest on the loan at a rate that varies by broker and loan size, usually accrued daily and charged monthly. Hypothetical: $10,000 borrowed at 10% a year costs about $2.74 a day, roughly $1,000 a year, which the trade must earn before it makes anything for you. The risk management guide covers leverage from the account’s side.
What is a margin call? A worked example
A margin call is the broker’s demand to bring your equity back above the maintenance requirement. Because the loan stays at $10,000 while the stock moves, the trigger is a fixed account value: at 25% maintenance, equity drops below 25% once the position is worth less than $10,000 ÷ 0.75 = $13,333, about $33.33 a share.
Follow the bars at the top of the page. At $37.50 the position is worth $15,000 and equity is $5,000, or 33%: no call. At $32.50 it is worth $13,000 and equity is $3,000, or 23%: margin call. The required equity is 25% × $13,000 = $3,250, so you must add $250 in cash or sell about $1,000 of stock to cut the loan. With a 30% house requirement, the call would have come earlier, below about $14,286.
You can meet a call by depositing cash, depositing marginable securities or selling holdings, as the flowchart below shows. Brokers set short deadlines, and in a fast market they do not have to wait for one.
Can you lose more than you invest on margin?
Yes. The loan must be repaid whatever the stock does, so losses can exceed the money you put in. Hypothetical: the same 400 shares close at $40, then bad news gaps the stock open at $20. The position is worth $8,000 against a $10,000 loan: your $10,000 is gone and you owe the broker $2,000 more, plus interest. A stop loss would not have saved you: once triggered, a stop becomes a market order and fills at the gap price.
The SEC’s investor guidance lists what surprises many margin users: the broker can sell your securities without contacting you, can choose which ones to sell, can raise its maintenance requirement at any time, and you are not entitled to an extension on a call. Size positions so that a gap costs a bearable amount; the position size calculator helps.
Margin for short selling and day trading
You cannot sell short in a cash account. Short selling means borrowing shares, so it needs a margin account, and Regulation T requires margin of 150% of a new short position: 100% from the sale proceeds and 50% from you.
Day trading on margin changed in 2026. Until then, four or more day trades within five business days made you a pattern day trader, who needed at least $25,000 of equity. The SEC approved FINRA’s amendments to Rule 4210 in April 2026, effective June 4, 2026: they remove the pattern day trader designation and the $25,000 minimum and replace them with intraday margin standards, under which your equity must cover your exposure during the day and any shortfall must be met promptly. No new fixed dollar minimum took its place, and the 50% and 25% rules are unchanged.
Brokers may phase the change in until October 20, 2027 and can keep stricter rules, so some may still apply the old limits: check your broker’s current policy, and see day trading for beginners. Finally, because margin loans charge interest, some investors avoid margin for religious reasons; see halal stock investing.