Account Types In The US

The trading accounts available to US traders are very different to those elsewhere. The growth of online trading – for income, growth, retirement – or a combination, mean more people than ever are trading. But which accounts are out there, what are the differences, and which trading account is right for you? Read on to find out.

From Reg T and Portfolio Margin, to 401ks, Pattern traders and Retirement options, we explore US definitions and detail exactly what each account offers, and demands, for retail investors and traders.

Margin Accounts

In US margin accounts, traders have two broad options to choose from:

  1. Reg T
  2. Portfolio margin

We explain both type of account below.

Top 3 Trading Accounts

The leading US trading Exchange. Nadex offer genuine exchange trading to US clients on Binary Options. Fully regulated by the CFTC. boast a global reputation. Regulated in the UK, EU, US and Canada they offer a huge range of markets, not just forex, and offer very tight spreads and a cutting edge platform.
NinjaTrader offer Traders Futures and Forex trading. Use Auto-trade algorithmic strategies and configure your own trading platform, and trade at the lowest costs.

Reg T

Regulation T, commonly known as “Reg T”, governs how much credit securities brokers and dealers can extend to their customers in the US.

The initial margin requirement for the purchase of stocks under Reg T is 50 percent, or up to 2x the equity value of the account.

This means that under Reg T, a trader must purchase at least half the securities in the account with cash while half can be purchased on margin.

For example, if a trader wants to buy 100 shares of a $50 stock ($5,000 total purchase), under Reg T he will be able to buy half of that with cash ($2,500) and the other half with money borrowed from the broker ($2,500).

Because margin accounts can expose traders to the loss of capital beyond their own equity, and dealing with leverage requires a certain level of sophistication, many brokers will require account minimums to open and maintain a margin account. This varies by broker.

Portfolio Margin

Portfolio margin is a risk-based margin system available to qualifying US investors.

To be eligible, brokers will normally require at least $100,000 in account equity.

The basic standards applied by FINRA require at least $100,000 in equity for customers of brokers that have intraday real-time monitoring systems.

This increases to at least $150,000 for customers of brokers that lack intraday real-time monitoring systems.

For prime brokerage customers or for introducing brokers who execute clients’ trades away from the clearing firm, then at least $500,000 in account equity is required.

On Interactive Brokers, for example, if a US trader has at least $110,000 in account equity, he is eligible to apply for a portfolio margin account. To maintain eligibility, account equity of at least $100,000 must be maintained. Other brokers may require a different amount.

Portfolio margin aims to give more sophisticated traders the ability to better align margin requirements with the risk profile of the portfolio.

Typically, portfolio margin allows for a higher leverage capacity relative to traditional Reg T requirements. Portfolios that are better diversified or maintain hedged trade structures can often reduce their margin requirements to less than 15 percent.

This means traders may have the opportunity to leverage their portfolios at 6x or more under portfolio margin.

Portfolio margin is based on the Options Clearing Corporation’s (OCC) TIMS methodology. This works by setting the margin requirement to the maximum loss of the portfolio when stress-testing the allocation across a host of various hypothetical moves in the underlying markets.

The market move simulated depends on the nature of the underlying instrument(s). (The full list can be found on the OCC’s website.)

  • – “High capitalization” Broad Based Indices are simulated over a -8 percent to +6 percent price range.
  • – “Non-High Capitalization” Broad Based Indices are simulated over a -10 percent to +10 percent price range.
  • – Sector indices are simulated over a -15 percent to +15 percent price range.
  • – Individual equities are also simulated over a -15 percent to +15 percent price range.
  • – Leveraged ETFs and inverse ETFs will be bucketed according to where they fall above (i.e., sector or broad based) and multiplied by their stated leverage. For example, if the ETF follows a particular sector and is leveraged 3x, then it will be simulated over a -45 percent to +45 percent price range. (And would thus face a similar margin requirement to Reg T.)

Once the profit and loss scenarios are taken across each group of instruments, “offsets” are then applied to determine the final margin calculation. Offsets are set by the

OCC and measured based on the degree of correlation between securities.

There are 28 total product offset groups and each has its own offset percentage. For example, a profit in a NASDAQ ETF can help offset the loss in a S&P 500 ETF since both represent the same asset class.

Single stock positions that don’t qualify for index inclusion do not receive the benefit of any profit/loss offsets. Accordingly, a portfolio of single stock positions must maintain a minimum margin requirement of 15 percent.

After the offsets are applied, then profit and loss estimates can be determined based on each market move to set the margin requirement, which is updated dynamically in real-time.

US Trader Account Types

Pattern Day Trader Account

A pattern day trader is a special FINRA designation when the following conditions are met:

(i) The trader executes four or more day trades (i.e., buys and sells securities intraday) within five business days

(ii) Trades in a margin account (cash accounts are not eligible)

(iii) Such trades are more than six percent of the customer’s overall trading activity over the measured five-day period

(iv) Maintains an equity balance of at least $25,000 (balance above a certain threshold is used as a proxy to denote a trader’s level of sophistication)

The Pattern Day Trade rule is in place to discourage investors from trading too frequently. If the amount of equity in the account drops below $25,000 then the trader can no longer execute day trades until the equity balance is brought back above that level.

A pattern day trader is also eligible for lower margin requirements than the standard 50 percent provided by Reg T.

For example, if an investor under the Pattern Day Trade rule has an account equity value of $50,000, then he is eligible to purchase up to $200,000 worth of stock. This is higher than the normal $100,000 that could be executed under traditional Reg T rules.

If the value of these stocks increases by two percent in one day, he would be eligible to gain eight percent due to the greater margin availability (not factoring in margin costs accrued on that particular day).

Accordingly, the pattern day trader designation can be attractive for certain investors. Nonetheless, the extra leverage cuts both ways and can lead to higher potential returns but also higher potential losses.

Retirement Accounts

A retirement account often serves as part of a broader retirement plan that will allow an investor to replace their employment income upon retirement.

These accounts may be set up individually or by employers, unions, the government, insurance companies, or other institutions.

To encourage responsible investing and retirement planning, some national governments have sponsored tax-deferred or tax-exempt plans.

In the US, the most popular options include the 401(k) and Individual Retirement Account (IRA).

We’ll briefly cover the major plans below:


The 401(k) is the most popular defined-contribution pension account in the US.

Retirement savings are provided by an employer after deducting them from an employee’s paycheck before taxation. Accordingly, these savings are tax-deferred until withdrawn after retirement. As a perk, some employers will match employee contributions up to a certain percent.

As of 2020, an individual can contribute up to $19,500 in pre-tax earnings to the 401(k).

Traditional IRA

Contributions to the traditional IRA are made with pre-tax assets and are typically tax-deductible. Transactions and earnings (i.e., dividends, interest, capital gains) within the IRA have no impact on tax outcomes.

Withdrawals upon eligible retirement age are taxed as ordinary income, with “retirement age” considered the year in which the taxpayer turns 59-1/2 (otherwise a 10 percent penalty is applied to any withdrawals).

The Individual Savings Account (ISA) can be thought of as the UK-equivalent.

Roth IRA

Contributions are made with after-tax assets. Withdrawals are normally tax-free.

As of 2020, $6,000 could be contributed annually to traditional and Roth IRAs combined, or $7,000 if 50 or older.

Individuals who make beyond a certain amount of money per year are not eligible to contribute to a Roth IRA. This stood at $139,000 as of 2020, with contribution allowance tapering starting at $124,000.


SEP IRAs are used by business owners to offer retirement benefits to themselves and their employees. They are commonly used by self-employed individuals with no employees as the administration costs are minimal.

For any business owner with employees, each individual employee must receive the same benefits as directed under the SEP plan.

SEP accounts are treated the same as IRAs, and therefore funds can be invested the same way as for an IRA. They allow for retirement contributions made in an employee’s name rather than the extra administration involved in setting up a pension fund in the company’s name.

Roth 401(k)

Introduced in 2006, the Roth 401(k) is basically a 401(k) with the tax features of a Roth IRA.


A 403(b) is similar to the 401(k), but is reserved for certain entities, such as religious institutions and non-profit workers.

401(a) And 457 Plans

Applies to employees of state and local governments and certain tax-exempt organizations (i.e., non-profits).

Keogh Plan

Also known as the HR10, this provides a pension plan for self-employed individuals.

529 Savings Plan

A tax-advantaged savings vehicle designed to save for future educational costs.