What is a Margin Account?

The stock market trading scene sees new investors enter the trading world every single day of the year. Trading in stocks and other assets, like commodities, on exchanges, seems to be the need of the hour with young and old alike. Today, you will discover that even college students are learning about the tactics of trading as early as the age of 16. If you are an investor, and you wish to trade on exchanges, you will likely have to open a trading account with a brokerage company. When you do this, you have to choose between two kinds of accounts. You can either opt to open a margin account, or a cash/money account. A regular trading account in the form of a cash account is what most traders have and transact with a brokerage. This is an account through which traders and investors pay for stocks, or any other assets, that are bought. The broker in question, then earns a commission, which is a percentage of the transactions undertaken.

Now, coming to a margin trading account, this is different from a cash account. Here, if you are an investor, you do not have to pay any cash, initially, for shares or stocks bought by you. Instead of this, you may deposit a portion (a percentage) of the transaction amount, and the rest is borne by your broker. In effect, this is an account in which your broker gives you a loan to start off your trading. It is noteworthy to be aware of the fact that margins are not merely for stocks, but are used extensively in derivatives such as futures trading, as well as for trading in commodities.