What is a margin account?

A margin account is specifically designed for trading and allows an investor to borrow money from a brokerage to purchase securities. This borrowing entails using the securities in the account as collateral, which enables the investor to leverage their investments. By allowing borrowing, margin accounts can amplify both potential gains and potential losses, as the investor is using borrowed funds in addition to their own capital. This feature of bolstering purchasing power distinguishes a margin account from other types of investment or savings accounts.

The other options do not accurately describe a margin account. For instance, it does not require no initial investment, as there is typically a requirement for a minimum deposit. Similarly, it is not a high-interest savings account; rather, it involves trading and potentially incurring costs related to interest on borrowed funds. Lastly, while retirement funds can be held in special accounts designed for that purpose, a margin account is not limited to such uses and is primarily intended for active trading and investment purposes.