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Cash vs margin account: what changes when you borrow

A cash account only lets you spend money you have. A margin account lets you borrow. That one difference changes the rules, the costs, and how much you can lose.

Comparison · 7-minute read · Updated 2026-10-21

The short answer

In a cash account, you buy stocks with your own money. To buy, the cash has to be settled. US stock trades settle in one business day, called T+1.

In a margin account, your broker can lend you money to buy more, using your holdings as collateral. You pay interest on the loan. If your account value falls too far, you get a Margin call.

Both kinds trade the same stocks at the same hours. The difference is borrowing.

Side by side

Cash accounts: the settlement rule

Here's the one rule that trips people up.

When you sell a stock, the cash isn't settled until the next business day. If you buy a new stock with that unsettled cash, then sell the new stock before the first sale settles, that's a "good faith violation".

A few of those in a year, and many brokers restrict the account for 90 days, so you can only buy with fully settled cash.

The fix is simple. Track your settled cash, and only trade with it.

Margin accounts: how borrowing works

Under the Federal Reserve's Regulation T, you can usually borrow up to 50% of the price of most stocks you buy.

A worked example:

• You have $5,000. You buy $10,000 of stock, borrowing $5,000.
• The stock rises 10% to $11,000. Your equity is $6,000, a 20% gain on your $5,000.
• The stock falls 10% to $9,000. Your equity is $4,000, a 20% loss.
• It falls 40% to $6,000. Your equity is $1,000. With a 25% maintenance level, you'd get a margin call before this point.

Borrowing doubles the swing both ways. That's a math example, not a promise. FINRA sets a minimum maintenance level of 25% equity; many brokers set it higher. When you fall below it, you must add money or the broker can sell your holdings, without asking.

Cash account: strengths and limits

The good parts:

• No borrowing, no interest, no margin calls.
• Your loss can't exceed what you put in.
• Built-in brakes. The settlement wait slows down rapid trading.

The limits:

• Settlement waits can leave cash idle for a day.
• No shorting.
• Fewer options strategies. Many brokers only allow simple options trades in cash accounts.

Margin account: strengths and limits

The good parts:

• No settlement waits for most trades.
• Short selling allowed. See Short selling.
• Flexibility for more strategies.

The limits:

• Losses can exceed your deposit.
• Interest costs on borrowed money, every day you hold it.
• Forced selling. The broker can sell your positions in a margin call, at bad prices.
• Temptation. Borrowing power can make positions much bigger than your plan.

On day trading: the old $25,000 pattern-day-trader minimum, which applied to margin accounts, was eliminated in 2026. Brokers can still set their own rules.

Which fits you?

1. You're starting out with a small account. A cash account keeps it simple. No loans, no margin calls.
2. You want to short or use more options strategies. You'll need a margin account.
3. You trade often and the settlement wait gets in the way. A margin account removes it, but treat borrowing as off unless you decide otherwise.

Common mistakes

• Trading with unsettled cash in a cash account and getting restricted.
• Using full buying power as the default size.
• Forgetting the interest. It's a real, daily cost on borrowed money.
• Assuming a margin call gives you time. Brokers can sell right away. See leverage and margin explained.

Questions