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Cash, Margin, and Registered Accounts: What's the Difference?
Module 2 — Making the Switch
When you're ready to open a self-directed brokerage account, you'll usually be asked to pick an account type before you're asked almost anything else. It can feel like a strange place to start — you just wanted to buy some index funds — but the account type is really just the "container" your investments live in, and it quietly shapes what you can do and how you're taxed. Here's the plain-language version of the three containers you'll run into most.
Cash Accounts
A cash account is the simplest option, and it's the default most people end up with. You can only invest with money you've actually deposited — no borrowing, no leverage. When you sell something, the cash from that sale needs to settle (a short waiting period) before it's available to reinvest or withdraw.
Because there's no borrowed money involved, a cash account carries no risk of owing the brokerage more than you put in. It's the account type most often paired with a long-term, buy-and-hold approach, simply because it matches how that approach actually works: money in, investments held, no debt attached.
Margin Accounts
A margin account lets you borrow money from the brokerage, using the investments you already hold as collateral. That borrowed money can be used to buy more securities than your cash balance alone would allow, which is why margin is often described as "leverage" — it can amplify gains, but it amplifies losses the same way, and you're on the hook for the borrowed amount regardless of how your investments perform.
Both Canada and the U.S. regulate how much can be borrowed and require the account to maintain a minimum equity cushion (a "maintenance margin"). If the value of the account drops too far, the brokerage can issue a margin call, requiring more cash or securities, or it can sell holdings without asking first. In the U.S., accounts placing frequent short-term trades on margin can also trigger "pattern day trader" rules, which impose a higher minimum balance requirement. In Canada, margin requirements are set by IIROC and vary by the type of security being held.
Margin isn't inherently reckless — plenty of investors never touch it, and some experienced investors use small amounts of it deliberately. But it is a meaningfully different risk profile than a cash account, and it's worth understanding fully before opting in, since most brokerages make it an easy checkbox at account opening.
Registered / Tax-Advantaged Accounts
This is the category where Canada and the U.S. genuinely part ways. Both countries offer account types with special tax treatment to encourage saving for retirement, education, or other goals — but the specific accounts, their names, and their rules are different enough that it's worth looking at them side by side.
The shared theme, even with different names and rules: governments on both sides of the border use these accounts to nudge long-term saving, either by giving the tax break today or on the back end. Which account (or combination) fits a given goal is genuinely country-specific — and detailed enough that each one gets its own dedicated page rather than being crammed in here.
Where to Go From Here
This page is the general map. The mechanics of each registered account — contribution limits, withdrawal rules, and what happens if you overcontribute — live on their own country-specific pages, along with a closer look at how cash and margin accounts are opened and funded in Canada versus the U.S.