Margin Accounts vs Cash Accounts

A cash account uses settled cash for purchases. A margin account lets you borrow against collateral for some trades and is required for many short options strategies.

Margin increases buying power and risk. Brokers can liquidate positions without your consent if you fall below requirements.

Cash account essentials

• Pay full cost (or premium) with available settled funds
• Settlement delays can block redeploying proceeds (T+1 for stocks as of recent US rules, confirm current settlement)
• Good faith violations if you buy with unsettled sale proceeds improperly
• No short stock; limited short options (often none)

Good for beginners avoiding borrow and some PDT contexts, but not a panacea.

Margin account essentials

• Borrow for stock purchases per Reg T rules
• Short stock and short options (with approval)
• Subject to maintenance margin calls
• PDT rules apply if you day trade

Options approval levels (typical broker tiers)

Exact names vary by broker:

Level (example)	Often allowed
1	Covered calls, cash-secured puts
2	Long options
3	Spreads, defined-risk combos
4	Naked puts/calls (higher equity)

Higher levels need experience questionnaires and minimum equity. Naked short calls are not beginner strategies.

Buying power vs cash

Option buying power may differ from stock buying power. Spreads show margin reduction vs naked legs. ThetaViz does not display your broker BP, check live before order.

Margin calls

If account equity falls below maintenance:

1. Broker issues call to deposit cash or securities
2. Deadline is short (sometimes hours)
3. Forced liquidation if not met

Short premium positions can expand margin needs when the underlying moves against you.

Covered call and short put margin

Covered call: stock collateral covers obligation.
Cash-secured put: cash reserved for potential assignment.
Naked put: margin formula based on strike and underlying price.

See Short put and Short call risks.

Futures margin separate

Futures use per-contract performance bonds, not Reg T stock margin. See Futures margin.

Tips

• Keep excess cash buffer (10–20%+ unused BP)
• Do not max short premium across correlated names
• Read assignment notices same day

Worked example: Reg T stock purchase

You have $10,000 cash in a margin account. Reg T often allows up to $20,000 of stock purchase intraday with overnight reduction to 50% margin (simplified; brokers show exact BP).

• You buy $15,000 of stock. If it drops 10%, equity falls and maintenance margin may bite.
• Options BP may be lower than stock BP on the same account.

Worked example: spread margin vs naked put

Short naked $100 put on $95 stock: margin tied to strike and underlying.
Bull put spread $100/$95: max loss defined; margin often smaller than naked.

The builder shows economic max loss; your broker shows regulatory margin. Both matter.

Portfolio margin (brief)

Accounts above broker thresholds may use portfolio margin with different models. Not default for beginners. If you upgrade later, revisit all position limits.

Cash account good-faith violation (sketch)

Sell stock Monday, buy another stock Tuesday with unsettled proceeds in a cash account → possible GFV restriction. Settlement rules changed over time; read current SEC and broker help pages.

IRA and retirement accounts

Many IRAs allow limited options (covered calls, spreads) but not naked shorts or margin loans. Approval tiers differ from taxable margin. PDT often does not apply the same way, but settlement and cash rules still do.

Hard-to-borrow and short stock

Shorting stock requires locate/borrow. Hard-to-borrow names have higher fees. Short calls without stock are naked and need high approval.

Upgrade path

Brokers often require experience questions to move from level 2 (long options) to level 3 (spreads). Answer honestly. Trading spreads without approval forces legging and extra risk.

Maintenance vs Reg T overnight

Intraday buying power can exceed overnight BP. A position that is fine at noon may be a margin call at 4 p.m. if you lack overnight excess.

Dividend capture and margin

Buying stock on margin before ex-div while short calls are open can be a messy combination. Assignment and margin interact. Plan the whole position, not one leg. Your broker's buying power screen is the final word before any order.

Related guides

• Pattern day trader rule
• Risk management and position sizing
• Options risk disclosure

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ThetaViz provides educational tools only. This guide is not investment, tax, or legal advice. Prices, margin requirements, and tax rules change. Confirm details with your broker and qualified professionals before trading.