Understanding Margin Accounts

Understanding Margin Accounts

When opening a brokerage account, you will be presented with two options: Margin and Cash Accounts. While each have their own features, knowing their functions would definitely help you with your decisions. In this write-up, we will focus on Margin Accounts.

Margin Accounts are types of brokerage accounts that allow investors to borrow money to purchase securities. Usually investors pays 50% of the total value of a certain purchase. This means that they will loan the remaining fifty that will be consequently charged naturally. As part of the right, the broker will then use the securities as a collateral within the transaction.

Margin Accounts
Margin Accounts doesn’t entirely require cash as some of the value of purchase are loaned first.

Cash Vs Margin Accounts

The main difference of the two is that Cash Accounts utilizes cash or long positions when buying securities. Here, you must deposit cash to perform trades on a certain position within a session.

Meanwhile, margin accounts let investors borrow a certain value to purchase a position as mentioned above. You can leverage your positions consequently and may profit whether a market is bullish or bearish. Margin accounts also allow traders to withdraw cash as short-term loan.

More so, there are other types of accounts as well. The option account for one is an account that allows option trades. However, if you engage in this, you are risking more as this market is riskier in nature. Exports do not recommended this option but having one isn’t entirely bad.

Also, IRA accounts serve as another option. The Individual Retirement Accounts provides features for savings purposes. Investors use it for future retirement reasons. The account may provide tax advantages as well.

There are different types of trading account aside from these. Choosing the perfect one will depend on what you think will work for you the best. You may want to consider your trading lifestyle first before selecting.  You can read more here.

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