On Public, you can now open a cash or margin account. Existing brokerage accounts can also switch to a margin account from settings in the Public app.
What is a cash vs. margin account?
A cash account is a type of brokerage account where you must fully pay for all securities purchased. You can not borrow funds from your broker-dealer (i.e. Public investing) to pay for the transactions in your account. A margin account is also a brokerage account, but one where your broker-dealer can lend you cash to purchase securities by using your account equity as collateral.
What is margin investing?
Margin investing means purchasing a security with some of your own money plus some borrowed funds from a broker-dealer. The borrowed money is known as “leverage.” In this model, an individual is trading with money they do not have at this moment, in the hopes that the investment will pan out and they will have enough funds to cover whatever was borrowed plus interest. Margin investing requires having a margin account, which is similar to a line of credit. There are benefits (and risks) that a margin account can provide.
What are the benefits of Public’s margin account?
Ability to trade using unsettled funds from trades and avoid ‘Cash Account’ violations like Good Faith Violations.
Simpler money movements and ability to withdraw funds from unsettled trades.
Less risk if you accidentally are short a security as you will have more time to meet the resulting margin call - though Public Investing does not offer the ability to short securities at this time.
What are the risks of a margin account?
Margin accounts can be risky and are not appropriate for everyone. Margin accounts are also subject to Pattern Day Trading rules. Many of the risks typically associated with a margin account are related to margin investing, including:
With margin investing, you can lose more money than you’ve invested, given your trading on borrowed funds.
With margin investing, you may have to make additional deposits, or sell some or all of your securities, on short notice to cover market losses.
If you have a margin call, Public can force the sale of securities, and you are not entitled to choose specific securities for liquidation.
Learn about other risks associated with Margin Accounts.