Margin vs cash brokerage account
By Jude Wallis
A cash account buys with the cash already there. A margin account adds a broker loan. At a 50 percent initial margin, $10,000 of cash supports $20,000 of buying power and $10,000 is borrowed.
| Margin account | Cash account | |
|---|---|---|
| \$10,000 at 50 percent initial margin | Buying power $20,000, borrowed $10,000. | Not the cash-account rule. Cash accounts do not open that loan. |
| \$10,000 at 100 percent cash | If the broker required all cash, buying power would be $10,000 and borrowed $0. | Buying power $10,000, borrowed $0. |
| Who loses first | Account equity absorbs price moves while the loan stays due. | The whole position is equity. There is no broker loan on this sheet. |
| Interest | Charged on the borrowed balance. | No margin interest, because nothing is borrowed. |
On this page
A lower initial requirement is more borrowing, not a recommendation
A hypothetical 25 percent initial requirement turns the same $10,000 into $40,000 of buying power and $30,000 borrowed. That row is a sensitivity test, not Regulation T and not a plan. The third worked example is that identity.
This is educational material, not financial advice.
Worked examples
50 percent initial margin
Cash is $10,000. Initial margin is 50 percent. What are buying power and the borrowed amount?
- Buying power is , so $20,000.
- Borrowed is $20,000 minus $10,000, which is $10,000.
Buying power is $20,000. Borrowed is $10,000.
100 percent cash, no loan
Cash is still $10,000. Treat the required share as 100 percent, as in a cash purchase. What are buying power and borrowed?
- Buying power is , so $10,000.
- Borrowed is $0.
Buying power is $10,000. Borrowed is $0.
25 percent sensitivity
Cash is still $10,000. Treat the required share as 25 percent. What are buying power and borrowed?
- Buying power is , so $40,000.
- Borrowed is $40,000 minus $10,000, which is $30,000.
Buying power is $40,000. Borrowed is $30,000.
Common questions
Is a cash account the same as 100 percent initial margin?
On this sheet the arithmetic matches: buying power equals cash. The legal account type still has its own settlement rules.
Does margin protect against a price drop?
No. Equity absorbs the drop first. The loan remains due.
Is this financial advice?
No. Educational material.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.