FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsMedium
A client is opening a new brokerage account. The registered representative explains the different account types. The client states they want an account where they can trade immediately after depositing funds, without waiting for checks to clear, and also wants to borrow money against their securities. Which of the following account types would be MOST appropriate for this client?
- ACustodial account
- BCash account
- CDiscretionary account
- DMargin account
Show answer & explanationAnswer & explanation
Correct answer: D. Margin account
A margin account allows clients to borrow money against their securities and typically offers immediate trading with deposited funds. A cash account requires full payment for securities and does not allow borrowing.
Why the other options are wrong
- A. A custodial account is for minors and does not directly address borrowing or immediate trading for an adult.
- B. A cash account does not allow borrowing against securities and may have settlement delays.
- C. A discretionary account pertains to who controls trading decisions, not the ability to borrow or immediate trading.
Margin Account
A brokerage account in which the broker lends the customer cash to purchase securities. The loan is collateralized by the securities themselves.
- Allows investors to buy more securities than they could with just their own cash (leverage).
- Customers pay interest on the borrowed funds.
- Subject to initial and maintenance margin requirements by FINRA and the brokerage firm.
Memory trick: Cash is simple, margin's a loan, discretionary's trust, custodial's known.