About 90% of retail investors who use margin lose money over time, according to research from FINRA. Yet margin accounts remain popular because they offer flexibility that cash accounts simply cannot match. Before you choose between a Robinhood margin account and a cash account, it helps to understand exactly what each one means for your money.
This guide covers how both account types work, the rules that apply to each, and which one might suit your situation better.
At a Glance
| Feature | Cash Account | Margin Account |
|---|---|---|
| Trade with borrowed money | No | Yes (Robinhood Gold required) |
| Settlement time | T+1 | T+1 (margin buying power available immediately) |
| Pattern Day Trader (PDT) rule | No | Yes (if under $25k) |
| Instant buying power | Limited | Yes |
| Interest on borrowed funds | No | Yes (5.75%–7.75% annually) |
| Options trading | Limited | Full access |
Cash Account
A cash account means you can only trade with money you have actually deposited. When you buy a stock and later sell it, the proceeds settle in T+1, meaning one business day after the trade. Until that settlement clears, those funds are not available to reinvest in certain situations.
The upside is simplicity. You cannot lose more than you deposit, and you are never charged interest on borrowed funds. The PDT rule does not apply to cash accounts, which means you can make as many day trades as your settled cash allows without hitting a government-imposed limit. For a full rundown of what the PDT rule means in practice, see the guide to can you day trade on Robinhood.
Cash accounts are a solid fit for investors who buy and hold, trade infrequently, or are just starting out and want to keep risk manageable.
Margin Account
A margin account lets you borrow money from Robinhood to buy securities. This is called buying on margin. To access this feature, you need a Robinhood Gold subscription, which costs $5 per month. The full list of Robinhood Gold benefits goes beyond margin access and includes premium research, a high-yield cash account, and a higher instant deposit limit.
With a Robinhood Gold margin account, you can borrow up to a certain amount based on your portfolio value. Robinhood charges annual margin rates between 5.75% and 7.75%, depending on the amount borrowed. These rates are applied daily, so even short-term margin use adds up.
Robinhood
Robinhood
Robinhood is a trading platform that brings stocks, ETFs, options, futures, prediction markets, crypto, and retirement accounts together in one app.
Standout feature
One platform for stocks, ETFs, options, futures, prediction markets, and crypto
Fees
$0 commission on stocks, ETFs, and options.
Pros
Zero-commission trading on stocks, ETFs, and options
Cons
Best perks (high APY, lower margin rates) require Gold subscription ($5/month)
The PDT Rule: A Key Margin Account Consideration
If your margin account balance is under $25,000, the Pattern Day Trader (PDT) rule applies. This rule is set by FINRA, not Robinhood. It limits you to three day trades in any rolling five-business-day period.
A day trade is when you buy and sell the same security on the same trading day. If you exceed three such trades, your account may be flagged as a pattern day trader, which restricts your trading until your balance reaches $25,000 or you wait out a 90-day cooling period.
Cash accounts are not subject to this rule because you are not using borrowed funds. This is one reason beginners who trade frequently may actually prefer a cash account despite its limitations.
Settlement: T+1 Explained
As of May 2024, U.S. stock trades settle in T+1, meaning the transfer of shares and cash completes one business day after the trade executes. Both account types follow this rule.
The practical difference is that margin accounts give you access to instant buying power. When you sell a stock in a margin account, you can often use those proceeds right away even before settlement. In a cash account, you generally need to wait for settlement before using the funds again to avoid a good faith violation.
Leverage and Risk in Margin Accounts
Margin amplifies both gains and losses. If you invest $5,000 of your own money and borrow another $5,000, a 10% gain on the full $10,000 position nets you $1,000, which is a 20% return on your own capital. However, a 10% loss wipes out $1,000, which is a 20% loss on your capital.
Robinhood can also issue a margin call if your account value drops below the required maintenance margin. If this happens, you may need to deposit more funds or sell positions quickly, sometimes at a loss.
Which Account Should You Pick?
Choose a cash account if you are a beginner, you trade infrequently, or you want to avoid the complexity of margin interest and PDT rules.
Consider a margin account if you have trading experience, you want instant buying power, or you plan to use options strategies that require margin. Those considering options should understand that the account type also determines which options levels are accessible — see why you can't trade options on Robinhood for a breakdown of those restrictions. Keep in mind that margin introduces meaningful risk. Borrowing to invest is never guaranteed to work in your favor.
Neither account type is inherently better. The right choice depends on your goals, experience, and risk tolerance. A broader look at the platform's overall strengths and fees is available in the Robinhood review.
Frequently Asked Questions
Can I switch between a cash account and a margin account on Robinhood?
Yes. You can upgrade from a cash account to a margin account through Robinhood's settings by subscribing to Robinhood Gold. Downgrading from margin to cash typically requires you to resolve any outstanding margin balance first and may take a few business days to process.
Does the pattern day trader rule apply to Robinhood cash accounts?
No. The PDT rule only applies to margin accounts. Cash account holders can make unlimited day trades as long as they use settled funds. However, using unsettled cash to trade can result in a good faith violation, which is a separate restriction.
What happens if I get a margin call on Robinhood?
If your portfolio value falls below the required maintenance margin, Robinhood may issue a margin call. You will need to deposit additional funds or sell some of your holdings to bring the account back into compliance. Robinhood can liquidate your positions without prior notice if the margin call is not met.
Is margin investing suitable for beginners?
Most financial experts recommend that beginners start with a cash account. Margin amplifies losses just as much as gains, and interest charges can erode returns over time. Getting comfortable with investing basics before adding leverage tends to produce better long-term outcomes.
