Cash vs Margin Accounts for Options Trading
Reviewed by Leon Moyer - Published October 9, 2026 - Last reviewed October 9, 2026
In this lesson
Explain how cash and margin accounts differ for options trading, and avoid the settlement and margin rules that trip up new traders.
A cash account requires you to pay for purchases in full without borrowing, while a margin account also lets you borrow from your broker against the securities you hold. The distinction matters for options funding and settlement.
This lesson describes US rules as checked against FINRA and SEC sources on October 2, 2026. Account features and options approval vary by broker, so check its policies before trading.
What is a cash account?
Cash accounts require full payment. Most securities, including options, settle one business day after the trade (T+1), as FINRA explains and the Options Industry Council confirms. Sale proceeds remain unsettled until the next business day.
Freeriding means buying a security and selling it before you have paid for it, so the sale itself pays for the purchase. Regulation T does not permit it, and the SEC's cash-account bulletin explains the 90-day freeze that can follow, during which any purchase must be fully paid on the trade date. Regulators and brokers label these patterns differently, as the next section shows.
What is a good faith violation?
A good faith violation occurs when you buy with unsettled sale proceeds, then sell the new position before those proceeds settle. FINRA calls it a good faith violation; the SEC's cash-account bulletin treats the same pattern as freeriding, which can trigger the Regulation T 90-day freeze. Brokers may add their own restrictions.
Worked example
A good faith violation in a cash account
Assume Monday and Tuesday are business days. Your fully paid XYZ call is your only holding, you have no settled cash, and your broker permits purchases with unsettled proceeds.
- Monday, 10:00 a.m.: you sell the call for $600. That $600 settles on Tuesday.
- Monday, 11:00 a.m.: you buy an ABC call with the unsettled $600. This purchase is allowed under the assumption above.
- Monday, 2:00 p.m.: ABC jumps, and you sell the ABC call for $750.
Step 3 is the violation: the $600 funding the ABC purchase has not settled. Waiting until Tuesday would avoid it.
Illustrative and hypothetical. The ticker and prices are invented for teaching, and the figures exclude commissions, fees, margin interest and taxes, which reduce real results. Past or hypothetical outcomes do not indicate future results.
How a good faith violation happens in a cash account
Mon: sell call
$600 of proceeds, settling Tuesday
Mon: buy ABC call
Paid with the unsettled $600
Mon: sell ABC call
Before the $600 settles: a good faith violation
What is a margin account?
A margin account lets you borrow from your broker, using the securities in the account as collateral. The key numbers, from FINRA Rule 4210 and the SEC's margin bulletin:
- $2,000 minimum equity before you can trade with borrowed money.
- 50% initial margin on most stocks: you can borrow up to half the purchase price.
- 25% minimum maintenance margin for ordinary long margin-eligible stocks. Options and short positions have different requirements, and brokers may require more.
If your equity falls below the maintenance level, you may receive a margin call. Your broker can also sell your securities without contacting you to cover the shortfall, and you owe any loss beyond what the account holds.
Can you buy options on margin?
For most options, no. A bought call or put that expires in nine months or less must be paid for in full, even in a margin account, under FINRA Rule 4210. Longer-dated listed options can be partly borrowed against, if your broker permits it: FINRA's minimum is 75% of their value.
With only cash and no other collateral, a margin account gives no extra buying power for these short-dated long options. A broker may allow borrowing against other eligible securities to fund the purchase; the option itself still requires 100% margin.
Buying power with $10,000 cash and no other collateral
Starting with $10,000 cash, no other collateral
Do you need a margin account to trade options?
Buying calls and puts does not require margin under the rules, though the SEC notes that many brokers require a margin account for any options trading. Many brokers allow covered calls and cash-secured puts in cash accounts; uncovered sales require margin and higher approval, while spread access varies by broker. FINRA Rule 2360 requires options approval and delivery of the options disclosure document before trading. Buyers and Sellers explains seller obligations, and the Options Trading Levels lesson covers approval levels.
What happened to the pattern day trader rule?
The old pattern day trader rule could require $25,000 in a margin account after four or more day trades in five business days. FINRA replaced the trade-count and equity minimum with intraday margin requirements tied to exposure. Regulatory Notice 26-10 sets the effective date at June 4, 2026 and lets brokers phase in until October 20, 2027. Your broker might keep the old rules during the transition or switch sooner, so FINRA's investor guide suggests asking it how the change affects your account. Neither framework applies to cash accounts, which follow full-payment and settlement rules instead.
What about options in an IRA?
Brokers generally do not permit margin loans in IRAs. Some offer a limited margin feature for IRAs, which permits trading with unsettled proceeds without borrowing. IRA options access usually centers on strategies that do not need borrowing, such as bought options, covered calls and cash-secured puts. Ask your broker which it approves.
Cash or margin: which account should a beginner open?
Choose based on your planned trades and broker approval:
A cash account avoids margin loans but requires attention to settlement. A margin account can support more strategies and greater obligations. Confirm your broker's approvals, collateral and buying-power rules.
Check your understanding
You have only $5,000 cash and no other collateral in a margin account. Can you borrow to buy $8,000 of calls that expire in three months?
Show answer
No. Options that expire in nine months or less must be paid for in full, even in a margin account, so you can buy at most $5,000 of them.
With no other settled cash available, you sell a fully paid put in a cash account for $400 on Tuesday and immediately use the $400 to buy a call. When can you sell the call without a good faith violation?
Show answer
From Wednesday, assuming it is a business day, when the $400 from Tuesday's sale settles (T+1). Selling the call on Tuesday would be a good faith violation.
Does the $25,000 pattern day trader minimum apply to a cash account?
Show answer
No. It applied only to margin accounts, and FINRA has replaced it with intraday margin requirements, which brokers are phasing in through October 20, 2027. Cash accounts follow full-payment and settlement rules.
Key takeaways
- A cash account requires full payment without borrowing; a margin account can also borrow against your holdings.
- Bought options with nine months or less to expiration are paid for in full in either account.
- In a cash account, selling a position bought with unsettled proceeds before they settle is a good faith violation.
- FINRA replaced the pattern day trader rule with intraday margin in 2026; brokers have until October 20, 2027 to switch.
Common questions
Do you need a margin account to trade options?
Not under the rules for buying calls and puts, though some brokers require a margin account for any options trading. Those with nine months or less remaining must be paid for in full; eligible longer-dated listed options can have different margin requirements. Many brokers also allow covered calls and cash-secured puts in a cash account. Selling options without covering them requires a margin account, and whether a cash account can trade spreads depends on the broker; many require margin.
Can you trade options in a cash account?
Yes. You can buy calls and puts with settled cash, and many brokers let you sell covered calls and cash-secured puts. You cannot borrow. A broker may let you buy with unsettled sale proceeds, but selling the new position before those proceeds settle can cause a good faith violation.
What is a good faith violation?
It is the term brokers and FINRA use for selling a position in a cash account that you bought with unsettled sale proceeds, before those proceeds settled. The SEC treats the same pattern as freeriding under Regulation T, which can bring a 90-day freeze, and brokers may restrict accounts that repeat it.
Is the pattern day trader rule still in effect?
FINRA replaced it with new intraday margin requirements, effective June 4, 2026, which drop the $25,000 minimum. Brokers may phase the change in until October 20, 2027, so yours may still apply the old rule. Check with your broker.