What is a margin account?

The term margin account refers to a brokerage account in which a trader's broker-dealer lends them cash to purchase stocks or other financial products. The margin account and the securities held within it are used as collateral for the loan. It comes with a periodic interest rate that the investor must pay to keep it active.

Do you need a margin account to trade securities?

Cash accounts and margin accounts are two types of brokerage accounts, and you can use either one to trade securities. Even if you have a margin account, you don't need to take out a margin loan. Margin accounts let you use the money in your brokerage accounts as collateral for a line of credit.

Are margin accounts taxable?

Margin accounts are a standard feature available for taxable accounts at most brokerages. Federal guidelines prevent most tax-advantaged retirement accounts, like individual retirement accounts (IRAs), from being available in margin accounts. Margin interest is the annual interest rate you owe on a margin loan or a margin account.

Can I switch from a cash account to a margin account?

You may be set up with a margin account by default, or switch from a cash account to a margin account if you've at least met the margin account's minimum balance requirement. Once you set up a margin account, your account's balance may determine how much you can borrow.