In cash accounts, customer trades must be fully paid for on or before settlement date, which is the day after the trade date for option transactions and three days after the trade date for stock trades. Investors with cash accounts cannot initiate or hold uncovered short positions.
In a margin account, customers are allowed to borrow money to fund transactions. Margin accounts may also utilize acceptable collateral to finance requirements and debit balances. Margin accounts may also (if approved) hold complex positions including uncovered short positions.
Margin should only be used by sophisticated investors who understand that losses can exceed their original investment.
For information on converting a cash account to a margin account, click here . Note: IRA and custodial accounts must be cash accounts.