What Types of Accounts Exist?

When you open a brokerage account, you will encounter different account types. Each one has different rules around how your money can be used, what taxes apply, and what the account is designed for. Choosing the right type from the start can save you a significant amount of money over time.

What is a cash account?

A cash account is the simplest type. You deposit money and use it to buy investments. You can only spend what you have. There is no borrowing involved. For most beginners this is the right place to start. It is straightforward and limits your risk to the amount you put in.

What is a margin account?

A margin account allows you to borrow money from your broker to buy more investments than you could with your own cash alone. This is called trading on margin. It can amplify your gains but it can also amplify your losses, and you pay interest on the borrowed amount. Margin accounts carry significantly more risk and are not recommended for beginners.