You currently have $5,000 in cash in your brokerage account. You decide to spend $8,000 to purchase shares of stock and borrow $3,000 from your broker to do so. Which type of brokerage account do you have?

Question

Quizplus · Accepted Answer

A margin account allows investors to borrow money from their broker to purchase securities, which is exactly what is happening in this scenario. The fact that the investor is borrowing $3,000 to purchase stock indicates that they have a margin account. A cash account would not allow the investor to borrow money from the broker. A wrap account is a fee-based account that provides investment advice and portfolio management services. A short account is used for short selling, which is not relevant in this scenario. Asset allocation is a strategy for diversifying investments across different asset classes.

You Currently Have $5,000 in Cash in Your Brokerage Account