What are the different types of trading accounts?

When opening an account for trading, you can open two main types of accounts: cash and margin.

What is the difference between a cash and margin account?

Cash Accounts:

A cash account, as the name implies, is simply the money you have to invest. You can buy and sell stocks for this account with just your original investment.

1. Cash accounts include:
2. Money Market Accounts

Brokerage Cash Accounts (you must open a margin account as well)

Margin Accounts:

Margin accounts are more complicated, but they can also give you greater rewards with less cash.

When you open a margin account, the brokerage firm will lend you money to make investments for your account, using the securities in your account as collateral.

However, there are risks involved if things go wrong with your investment.

When buying stocks on margin, you pay an interest rate (known as the “margin rate”) for the money your brokerage firm lends to you. The margin rate generally starts at 4.5% and goes up from there.

So if the stock market moves against you and causes your investment to lose money, it’s possible you could owe your brokerage firm interest on the amount that your investment has fallen.