Cash vs. Margin Accounts
In a cash account the customer pays in full for every purchase; in a margin account the customer borrows part of the price from the firm, pledging the securities as collateral and signing margin agreements first.
Margin magnifies both gains and losses and adds interest costs on the debit balance. The credit agreement discloses loan terms, the hypothecation agreement pledges the securities, and the optional loan consent lets the firm lend them to short sellers.