3.4 Cash vs. Margin Accounts
Cash accounts require full upfront payment, while margin accounts leverage customer capital subject to Federal Reserve Regulation T and FINRA minimums.
Key FINRA Exam Takeaways
- Cash Account: Customer must pay 100% of purchase price; no borrowing allowed.
- Margin Account: Customer borrows funds from broker-dealer; Reg T initial deposit is 50%.
- FINRA $2,000 Rule: Minimum initial equity deposit of $2,000 (or 100% of purchase if under $2,000).
- Hypothecation Agreement: Customer pledges securities as loan collateral.
- Credit Agreement: Discloses margin loan interest rates and terms.
- Loan Consent: Optional agreement allowing BD to lend customer shares to short sellers.
Knowledge Checkpoint • Section 3.4
A customer opens a new margin account and buys $3,200 of common stock. How much cash must the customer deposit to satisfy margin requirements?