What types of US options and futures accounts can I open?
There are two main US options account types:
- Cash account
- Margin account
The main difference between the two account types is access to leverage. Leverage allows you to borrow cash and collateralise eligible positions to hold positions and establish new positions. Certain products like futures and strategies like long or short multi-leg options spreads require a margin account.
Cash accounts
A cash account is one of the most basic brokerage accounts one can open. There is no account minimum to open or maintain a cash account at IG, nor are there any account maintenance or inactivity fees. Cash accounts only allow you to establish positions with the cash you have available in their accounts, meaning it prevents you from borrowing money (access to leverage). The products and the scope of trading strategies are limited.
Cash accounts can be optimal if you're looking to purchase stock, establish long single-leg options positions, or purchase cryptocurrencies. Any short options position established in a cash account must be fully covered. You might have heard of cash-secured put or covered call strategies, which are examples of strategies that can be established in a cash account. If you want to execute a naked call or put option, you would be required to use a margin account.
Margin accounts
A margin account is a type of brokerage account that allows you to buy securities with borrowed funds. This ability to use leverage means that you can control positions with less money than would be required in a cash account. With a margin account, you can borrow funds against their existing assets to buy additional securities. Margin accounts offer greater flexibility and potential for higher returns but also come with higher risks.
Margin accounts enable you to potentially earn higher profits, but they also amplify losses. If the value of securities held in a margin account drops significantly, you may be required to deposit more funds or sell assets to cover the losses. This process is known as a margin call.
Margin accounts allow you to short stocks, meaning you can sell stocks you don't own with intentions to buy them back at a lower price. This strategy can be used to profit from a decline in a stock's price.
