Trading, Accounts & Prohibited ActsQuestion 250 of 398
What is the primary difference between a cash account and a margin account?
a.A cash account can only hold bonds; a margin account can only hold stock
b.A margin account is only for institutions; a cash account is only for individuals
c.In a margin account the customer can borrow from the broker-dealer to buy securities; in a cash account full payment is required
d.A cash account earns interest; a margin account never does
Explanation
In a cash account the customer must pay in full for purchases. A margin account lets the customer borrow a portion of the purchase price from the firm, subject to Regulation T and FINRA maintenance requirements, which introduces leverage and additional risk.
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