# Trading Accounts Explained: How to Open, Margin Rules

> **Definition**
>
> A trading account is an investment account containing securities, cash, or other assets.

A trading account is an investment account that holds securities, cash, or other assets. Most commonly, a trading account is a day trader's primary account. Day traders frequently buy and sell assets in a single session, and their accounts must meet FINRA margin requirements of $25,000.

Assets in trading accounts are separate from long-term investment accounts.

### Key Takeaways

*   To open a trading account, provide identification and adhere to brokerage and regulatory requirements.
*   Most brokerages provide SIPC insurance for trading accounts, safeguarding against firm failure, not investment losses.
*   Pattern day traders must maintain a minimum equity of $25,000 in their accounts as required by FINRA.
*   Day trading involves buying and selling securities within the same day, often using a margin account.
*   Trading on margin offers increased buying power but includes risks like margin calls and interest charges.

![Trading Account: A place where traders can trade securities and monitor their investments.](https://www.investopedia.com/thmb/EAcNwZnbNEM-oFpY3HJlFbZzkDg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Tradingaccount_final-3aaf569cd50f463ca37b9d0178489d44.png)

*— Investopedia / Michela Buttignol*

## Exploring Trading Accounts: Key Activities, Purposes, and Risks

A trading account can hold securities, cash, and other investments like any brokerage account. The term also includes a variety of accounts, such as tax-deferred retirement accounts. Trading accounts stand out from other investment accounts in terms of activity level, purpose, and risk. Activity in trading accounts typically involves [day trading](https://www.investopedia.com/terms/d/daytrader.asp).

The [Financial Industry Regulatory Authority](https://www.investopedia.com/terms/f/finra.asp) (FINRA) defines a day trade as the purchase and sale of a security within the same day in a margin account. According to FINRA, [pattern day traders](https://www.investopedia.com/terms/p/patterndaytrader.asp) meet these criteria:

*   Traders who make at least four day trades (either buying and selling a stock or selling a stock short and closing that [short position](https://www.investopedia.com/terms/s/short.asp) within the same day) over a five-day week.
*   Traders whose day-trading activity constitutes more than 6% of their total activity during that same week.

Brokerage firms can also identify clients as pattern day traders based on previous business or another reasonable conclusion. Firms let clients open cash or [margin accounts](https://www.investopedia.com/terms/m/marginaccount.asp), but day traders usually prefer margin accounts. FINRA imposes special margin rules on investors identified as pattern day traders.

To open a trading account, you must provide your Social Security number and contact details.

> **Fast Fact**
>
> Depending on the jurisdiction and business details, your brokerage firm may have other requirements as well.

## Essential FINRA Margin Rules for Day Trading Accounts

Pattern day trading accounts have higher [maintenance requirements](https://www.investopedia.com/terms/h/housemaintenancerequirement.asp) than non-pattern accounts. [Regulation T](https://www.investopedia.com/terms/r/regulationt.asp) from the Federal Reserve Board outlines the base requirements for all margin investors. FINRA's Rule 4210 adds extra maintenance requirements for day traders

Day traders must maintain a base equity level of $25,000. The trader is permitted a purchasing power of up to four times any excess over that minimum requirement. Equity held in non-trading accounts is not eligible for this calculation. Traders who fail to meet these requirements receive a margin call, and trading limits are applied if the issue is not resolved within five days.

## How Do I Open a Trading Account?

You can open a trading account with your brokerage or investment firm of choice by filling out an application with your personal information and funding the account. If you want margin capabilities for trading, you'll need to complete the margin agreement and submit to initial margin requirements, house margin requirements, and all applicable regulatory policies.

## What Are the Disadvantages of a Trading Account?

With a trading account, you run some risks you wouldn't encounter with regular brokerage cash accounts. For instance, trading on margin increases your risk of loss because of the leverage used, and you may encounter interest charges on your margin funds as well. Plus, you risk margin calls and securities liquidation as a day trader with a margin account.

## Is It Safe to Keep Money in a Trading Account?

Yes, it's generally safe to keep money in a trading account. Most reputable brokerages offer Securities Investor Protection Corp. (SIPC) insurance up to $500,000. This insurance doesn't cover investment losses; it protects against broker firm failure.

## The Bottom Line

You need a trading account to actively buy and sell securities. It's important to ensure the brokerage you choose is insured by the Securities Investor Protection Corporation to protect you from broker insolvency.

Frequent traders must be familiar with pattern day trading rules, including FINRA's $25,000 minimum equity requirement and any broker-specific requirements.

Traders must maintain this level, and brokers issue "margin calls" for account top-ups within specified timeframes. Accounts must be replenished during calls, even if holders lack funds. Many people who trade using their margin accounts have lost more than they initially invested. Therefore, it's important to evaluate risks and rewards carefully and seek professional advice when trading on margin.

> **Article Sources**
>
> 1.  Financial Industry Regulatory Authority. “[Day Trading](https://www.finra.org/investors/investing/investment-products/stocks/day-trading).”
>     
> 2.  Financial Industry Regulatory Authority. "[4210\. Margin Requirements](https://www.finra.org/rules-guidance/rulebooks/finra-rules/4210)."
>     
> 3.  Fidelity Investments. "[Meeting the Requirements for Margin Trading](https://www.fidelity.com/learning-center/trading-investing/trading/meeting-requirements-margin-trading)."
>     
> 4.  Securities Investor Protection Corp. "[Who We Are](https://www.sipc.org/about-sipc/)."