Margin Account vs. Cash Account - Options Trading For Beginners - How To Trade Options

If you're feeling confused about the difference between cash and margin requirements for option trading in this video will help explain each to you.

In general cash accounts (also your traditional IRA or retirement account) will require that for every contract you buy or sell you have the underlying cash available to cover that contract's risk.

With margin accounts, the cash or securities that are already in your account act as collateral for a line of credit that you can take out from your broker in order to buy or sell more of an underlying option. This reduces your initial capital requirement for most trades which is a good thing but also leaves you vulnerable to overexposure in using too much leverage.

It's not that leverage is a bad thing because it isn't. You just need to be aware of how it's calculated and how much risk you are willing to take for your portfolio size.

We highly recommend that you call your broker and discuss their particular differences in how they calculate margin requirements for different option or stock positions.

[jarapovic]

Great video! You seriously explained everything so much faster and better than an entire chapter based on margin/cash accounts.. You're the man!

[micahagresta]

In my broker account there is a margin equity percentage which is usually 100% I short sold some share and also sold some calls against my long position. This margin equity is know 98% what is this number mean and if so is there any articles or videos you can point me to, so I can better understand this as I continue my trading education.

[dancasey]

what's the cost of margin usually and how do you factor it into the cost of the trade?