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The money market is where short-term debt and lending takes place; the capital market is designed for long-term assets, such as stocks and bonds. The former is considered a safer place to park one’s money; the latter is seen as riskier but potentially more rewarding. While the money market and the capital market are both aspects of the larger global financial system, they serve different goals for investors.

Understanding the difference between money market and capital market matters plays a role in understanding the market as a whole. Whether you hold assets that are part of the money market vs. capital market can influence your investment outcomes and degree of risk exposure.

What Is the Money Market?

The money market is where short-term financial instruments, i.e. securities with a holding period of one year or less, are traded. Examples of money market instruments include:

•   Bankers acceptances. Bankers acceptances are a form of payment that’s guaranteed by the bank and is commonly used to finance international transactions involving goods and services.

•   Certificates of deposit (CDs). Certificate of deposit accounts are time deposits that pay interest over a set maturity term.

•   Commercial paper. Commercial paper includes short-term, unsecured promissory notes issued by financial and non-financial corporations.

•   Treasury bills (T-bills). Treasury bills are a type of short-term debt that’s issued by the federal government. Investors who purchase T-bills can earn interest on their money over a set maturity term.

These types of money market instruments can be traded among banks, financial institutions, and brokers. Trades can take place over the counter, meaning the underlying securities are not listed on a trading exchange like the New York Stock Exchange (NYSE) or the Nasdaq.

You may be familiar with the term “money market” if you’ve ever had a money market account. These are separate from the larger money market that is part of the global economy. As far as how a money market account works goes, these bank accounts allow you to deposit money and earn interest. You may be able to write checks from the account or use a debit card to make purchases or withdrawals.

💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.

How Does the Money Market Work?

The money market effectively works as a short-term lending and borrowing system for its various participants. Those who invest in the money market benefit by either gaining access to funds or by earning interest on their investments. Treasury bills are an example of the money market at work.

When you buy a T-bill, you’re essentially agreeing to lend the federal government your money for a certain amount of time. T-bills mature in one year or less from their issue date. The government gets the use of your money for a period of time. Once the T-bill matures, you get your money back with interest.

What Is the Capital Market?

Capital markets play an important role in the U.S. and world economies. Capital markets are where entities can raise capital by issuing stock, bonds, and other longer-term securities, and investors can purchase these securities with an eye toward growth potential.

The capital market can be further segmented into the primary and secondary market. Here’s how they compare:

•   Primary market. The primary market is where new issuances of stocks and bonds are first offered to investors. An initial public offering or IPO is an example of a primary market transaction.

•   Secondary market. The secondary market is where securities that have already been issued are traded between investors. The entity that issued the stocks or bonds is not necessarily involved in this transaction.

Recommended: What Is an Emerging Market?

How Does the Capital Market Work?

The capital market works by allowing companies and other entities to raise capital. Publicly-traded stocks, bonds, and other securities are traded on stock exchanges. Generally speaking, the capital market is well-organized. Companies that issue stocks are interested in raising capital for the long-term, which can be used to fund growth and expansion projects or simply to meet operating needs.

In terms of the difference between capital and money market investments, it usually boils down to three things: liquidity, duration, and risk. While the money market is focused on the short-term, the capital market is a longer term play. Capital markets can deliver higher returns, though investors may assume greater risk.

Understanding the capital market is important because of how it correlates to economic movements as a whole. The capital market helps to create stability by allowing companies to raise capital, which can be used to fund expansion and create jobs.

Differences Between Money Markets and Capital Markets

When comparing the money market vs. capital market, there are several things that separate one from the other. Knowing what the key differences are can help to deepen your understanding of money markets and capital markets.

Purpose

Perhaps the most significant difference between the money market and capital market is what each one is designed to do. The money market is for short-term borrowing and lending. Businesses use the money market to meet their near-term credit needs. Funds are relatively safe, but typically won’t see tremendous growth.

The capital market is also designed to help businesses and companies meet credit needs. The emphasis, however, is on mid- to long-term needs instead. Capital markets are riskier, but they may earn greater returns over time than the money market.

Length of Securities

The money market is where you’ll find short-term securities, typically with a maturity period of one year or less, being traded. In the capital market, maturity periods are usually not fixed, meaning there’s no specified time frame. Companies can use the capital market to fund long-term goals, with or without a deadline.

Financial Instruments

As mentioned, the kind of financial instruments that are traded in the short-term money market include bankers acceptances, commercial paper, and Treasury bills. The capital market is the domain of stocks, bonds, and other long-term securities.

Nature of Market

The structure and organization of the money market is usually informal and loosely organized. Again, securities may be traded over-the-counter rather than through a stock exchange. With the capital market, trading takes place primarily through exchanges. This market is more organized and formalized overall.

Securities Risk

Risk is an important consideration when deciding on the best potential places to put your money. Since the money market tends to be shorter term in nature, the risk associated with the financial instruments traded there is usually lower. The capital market, on the other hand, may entail higher risk to investors.

Liquidity

Liquidity is a measure of how easy it is to convert an asset to cash. One notable difference between capital and money market investments is that the money market tends to offer greater liquidity. That means if you need to sell an investment quickly, you’ll have a better chance of converting it to cash in the money market.

Length of Credit Requirements

The money market is designed to meet the short-term credit requirements of businesses. A company that needs temporary funding for a project that’s expected to take less than a year to complete, for example, may turn to the money market. The capital market, on the other hand, is designed to cover a company’s long-term credit requirements with regard to capital access.

Return on Investment

Return on investment or ROI is another important consideration when deciding where to invest. When you invest in the money market, you’re getting greater liquidity with less risk but that can translate to lower returns. The capital market can entail more risk, but you may be rewarded with higher returns.

Timeframe on Redemption

Money market investments do not require you to hold onto them for years at a time. Instead, the holding period and timeframe to redemption is likely one year or less. With capital market investments, there is typically no set time frame. You can hold onto investments for as long as they continue to meet your needs.

Relevance to Economy

The money market and capital market play an important role in the larger financial market. Without them, businesses would not be able to get the short- and long-term funding they need.

Here are some of the key differences between money markets and capital markets with regard to their economic impacts:

•   The money market allows companies to realize short-term goals.

•   Money market investments allow investors to earn returns with lower risk.

•   Capital markets help to provide economic stability and growth.

•   Investors can use the capital market to build wealth.

Deciding Which Market to Invest In

Deciding whether to invest in the money market or capital market can depend on several things, including your:

•   Investment goals and objectives

•   Risk tolerance

•   Preferred investment style

If you’re looking for investments that are highly liquid and offer a modest rate of return with minimal risk, then you may turn to the money market. On the other hand, if you’re comfortable with a greater degree of risk in exchange for the possibility of earning higher returns, you might lean toward the capital market instead.

You could, of course, diversify by investing in both the money market and capital market. Doing so may allow you to balance higher-risk investments with lower ones while creating a portfolio mix that will attempt to produce the kind of returns you seek.

Alternatives to Money and Capital Markets

Aside from the money and capital markets, there are other places you can keep money that you don’t necessarily plan to spend right away. They include the different types of deposit accounts you can open at banks and credit unions. Specifically, you may opt to keep some of your savings in a certificate of deposit account, high-yield checking account, or traditional savings account. Here’s a closer look:

High-Yield Checking Accounts

Checking accounts are designed to hold money that you plan to use to pay bills or make purchases. Most checking accounts don’t pay interest but there are a handful of high-yield checking accounts that do.

With these accounts, you can earn interest on your checking balance. The interest rate and APY (annual percentage yield) you earn can vary by bank. Some banks also offer rewards on purchases with high-yield checking accounts. When looking for an interest-checking account, be sure to consider any fees you might pay or minimum balance requirements you’ll need to meet.

Traditional Savings Accounts

A savings account can be another secure place to keep your money and earn interest as part of the bargain. The different types of savings accounts include regular savings accounts offered at banks, credit union savings accounts, and high-yield savings accounts from online banks.

Of those options, an online savings account typically has the highest interest rates and the lowest fees. The trade-off is that you won’t have branch banking access, which may or may not matter to you.

The Takeaway

There are lots of reasons why people do not invest their money. A lack of understanding about the difference between money market vs. capital market investments can be one of them. Once you understand that the money market typically involves short-term, lower-risk debt instruments, while the capital market likely revolves around longer-term ones with higher risk and reward, you will be on your way to better knowing how the global financial market works.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What are the similarities between a money market and capital market?

Both the money market and the capital market are intended to make it easier for businesses and companies to gain access to capital. The main differences between money markets and capital markets are liquidity, duration, and the types of financial instruments that are traded. Both also represent ways that consumers can potentially grow their money by investing.

How is a money market and capital market interrelated?

The capital market and the money market are both part of the larger financial market. The money market works to ensure that businesses are able to reach their near-term credit needs while the capital market helps companies raise capital over longer time frames.

Why do businesses use the money markets?

Businesses use the money market to satisfy short-term credit and capital needs. Short-term debt instruments can be traded in the money market to provide businesses with funding temporarily as well as to maintain liquid cash flow.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBK-Q224-1945699-V1

In an increasingly digital world, mobile banking is among the cool new tools that can enhance your quality of life. It can make managing your money on the go simple and convenient.

The range of mobile banking features you have access to can, however, depend on where you choose to bank. Some of the most common features of mobile banking include the ability to view transactions, transfer funds, and review statements, all in the palm of your hand.

Understanding how those features work matters if you’re new to mobile banking or, like growing numbers of people, you’re on the hunt for a new bank account with mobile access. In fact, according to SoFi’s April 2024 Banking Survey of 500 U.S. adults, the top reason respondents gave for switching banks was to get better mobile/online banking options. Read on to learn:

•   What is mobile banking?

•   How does mobile banking work?

•   What are some of the top features of mobile banking?

•   What are the pros and cons of mobile banking?

What Is Mobile Banking?

Mobile banking refers to a range of banking products and services that are offered through a mobile device. To access mobile banking, you’ll generally need two things:

•   A compatible and connected mobile device, such as a cell phone or tablet

•   A mobile banking app

Mobile banking is different from online banking, in terms of how you access it. To use mobile banking, you need to log in to your bank’s mobile app. With an online bank account, on the other hand, you access your account through a laptop or desktop computer.

How Does Mobile Banking Work?

Mobile banking works by allowing banking customers to access their accounts from a compatible mobile device. Instead of logging on to your bank’s website from a laptop or desktop, visiting a branch, or calling your bank’s phone banking number, you can manage your accounts right from your mobile phone or tablet.

A mobile banking app is an app that’s designed to be used specifically for banking services. Numerous traditional and niche banks have introduced mobile banking apps to complement their online and in-person banking services. You can also find mobile banking apps offered through fintech companies, neobanks, and other institutions.

Generally speaking, these apps allow you to log in with a unique user ID and password. From there, you can perform different money management tasks, based on the mobile banking features the app offers.

But is mobile banking safe? Generally, the answer is yes, as banks take various measures to encrypt and protect mobile banking app user information.

12 Features of Mobile Banking

What are the features of mobile banking? The answer depends largely on where you decide to bank, as each bank can determine what features to include in its mobile app. That being said, there are some mobile banking app features that are typically common from bank to bank. Here are a dozen features to consider.

1. Account Details

The first thing you’ll see when you log in to a mobile banking app is an overview of your accounts. Specifically, you should be able to review the following at a glance:

•   Available account balances

•   Current account balances

•   Name of each account

•   Identifying details, such as the last four digits of the account number

If you want to see how much you have in checking, for instance, you can quickly log in to your mobile banking app to view your balance.

You may also be able to see other account details, including full account numbers and your bank’s routing number. That information can come in handy if you want to set up direct deposit or schedule an ACH transfer or payment online.

2. Transaction History

One of the most helpful mobile banking features is the ability to view your transaction history. Some of the things you might be able to do with your app include:

•   Reviewing posted and pending debits

•   Reviewing posted and pending credits

•   Cleared checks

•   Filtering transactions by date, amount, or transaction type

Seeing transaction history can be helpful when making a budget; it can help you know exactly where your money is going. You can also review your transaction history to look for anything suspicious. This could include such things as purchases you don’t remember making or micro deposits that could indicate someone is trying to link your account to an external account without your consent.

3. Bill Pay

Mobile banking app features can also include bill pay services. But what is bill pay? In short, it’s a feature that allows you to schedule one-time or recurring bill payments through your banking app. You can add info on those who typically bill you, select a payment account, enter the payment amount, and schedule the date the bill should be paid all from your mobile device.

That can save you time, since you can schedule bills to be paid automatically. It can also save you money if you’re not having to buy postage to mail in check payments. One more bonus: You’re avoiding late payment fees since bills are paid on time.

4. Mobile Check Deposit

Mobile check deposit can be a highly convenient mobile banking feature for people who regularly receive checks. Instead of taking your check to a branch to deposit it, you can snap a pic of it with your mobile device and deposit it from wherever you are.

That’s one of the main benefits of mobile deposit if you use an online bank or neobank that doesn’t have physical branches or offer ATM access. If someone gives you a check, you don’t have to worry about depositing it at a brick-and-mortar financial institution and then initiating a bank transfer from one bank to another. Instead, you can deposit the check in minutes from your phone. It’s a popular option: In the SoFi survey, 43% of respondents say they frequently use mobile check deposits.

5. Person to Person Payments

Mobile banking features increasingly include the option to send person to person payments to friends and family. You can log in, navigate to the payments section of your mobile banking app and schedule a payment to someone using their email address or phone number.

Depending on where you bank, those payments might be completed in real time, meaning the money transfers from your account to theirs in minutes. That’s much easier and more convenient than withdrawing cash or writing a check and you can avoid the fees that other payment apps like Venmo or Paypal might charge.

Recommended: Pros and Cons of Online Banking

6. Cardless Withdrawal

A cardless withdrawal allows you to get cash at an ATM without needing your debit card. Instead, you can withdraw money using a secure code that’s sent to your mobile device either via text or in your mobile banking app messaging feature. That’s a nice feature to have if your debit card is lost or stolen and you need to make a withdrawal.

7. Card Management

Credit cards often offer a card lock feature that allows you to freeze your card temporarily if it’s lost or stolen. The same feature is increasingly being offered with mobile banking. If you misplace your card, you can log in to the app, select the card, and freeze it with the tap of a button. You can unfreeze your card the same way if you find it. If you don’t, you can leave it locked until you’re able to contact customer service to report the loss.

8. Account Alerts

Setting up account alerts and notifications can be a great way to stay on top of your money and potentially head off fraud. Some of the alerts you might be able to set up with your mobile banking app include:

•   New credit and debit transaction alerts

•   Alerts notifying you of changes to your account information, such as your address or contact email

•   Failed login attempts

•   Updates to your user ID or password

•   Low account balances

You may be able to set up individual alerts for each account that you have or blanket alerts that cover all of your accounts. And you might be able to choose from email alerts, text alerts, or both, depending on your bank.

9. Statements and Documents

Opting in to electronic statements can help you avoid wasting paper. You might also avoid a fee if your bank charges you to get statements in the mail. In addition to viewing your statements through your mobile device, you might also be able to review other documents as well such as tax forms if you’re earning interest with a savings account. Or you could check investment account statements if you have a brokerage account at your bank as well.

10. New Account Opening

Need to open a new bank account? You might be able to skip the branch and set up a new checking, savings, money market, or CD account through your mobile banking app. You can save some time if you’re a customer and are already logged in, since the bank will have the relevant information needed to open the account. And you can easily arrange to transfer money from one of your existing accounts to the new account to cover your initial deposit.

11. Secure Messaging

Mobile banking apps can also include a message center where you can send and receive messages with your bank securely. If you’ve set up account alerts or notifications, for example, you can review those notifications through the message center as they come in. Your bank may also use the message center to send other secure notifications regarding your accounts.

12. Money Management Services

Your mobile app could save you time if you’re able to complete certain banking services from your device without having to visit or call a branch. For example, some of the things you might be able to do include:

•   Ordering checks

•   Putting a stop payment on a check you’ve written

•   Linking external accounts

•   Schedule bank to bank transfers

•   Managing overdraft protection

•   Reviewing fee schedules for your accounts

•   Ordering foreign currency

•   Requesting copies of checks

•   Finding bank locations near you

•   Connecting with customer support

You might even be able to use budgeting tools offered by your bank, like 23% of SoFi’s survey respondents do.

These features might be listed under a section called “Service Center” or “Services” in your mobile banking app. While you may not need most of them on a regular basis, being able to access them at your fingertips is a nice incentive to use mobile banking.

Banking With SoFi

Weighing the pros and cons of online banking and mobile banking can give you perspective on what’s good (or bad) about either one. If you’re specifically interested in being able to bank on the go, then finding an account that offers a robust mobile banking app is a must.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What are the benefits of mobile banking?

One of the main benefits of mobile banking is convenience. You don’t need to go to a branch or log in to your laptop to manage your money. Instead, you can transfer funds between accounts, view balances, pay bills, and send money to friends and family from your mobile device.

Are there any disadvantages of mobile banking?

The main disadvantage of mobile banking is that you can’t deposit cash through an app. If you need to deposit cash, you’ll need to take it to a bank branch or ATM to do so. Otherwise, there are very few drawbacks to mobile banking apps.

What is the purpose of mobile banking?

The purpose of mobile banking is to allow you to manage your bank accounts from anywhere as long as you have a compatible device and an internet connection. Mobile banking can save you time since you don’t have to go to a bank branch to complete basic transactions with your accounts.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOBK1022009

Margin trading simply means borrowing money from a brokerage to purchase securities, and margin balance is the amount of money an investor owes to the brokerage. Trading stocks and other securities on margin allows investors to expand their purchasing power, though the availability of margin is predicated on the holdings an investor has in the first place.

Accordingly, when an investor uses the brokerage’s funds to buy securities, this results in a margin debit balance. Similar to a credit card or traditional loan, a margin balance is a line of credit that the borrower must repay with interest. Having a margin balance outstanding is common in margin trading, but investors should understand the implications of owing money to a brokerage — and what can happen if you’re subject to a margin call.

What Is Margin Balance?

Again, margin balance is the amount of money an investor owes to its brokerage at any given time in a margin trading account. When an investor opens a margin account, they must make an initial deposit, called the “minimum margin.” The Financial Industry Regulatory Authority (FINRA) requires a minimum margin of at least $2,000, though some brokerages may require a higher minimum.

After making that deposit to their brokerage account, investors can then trade using an initial margin. Federal Reserve Board Regulation T allows investors to borrow up to 50% of the purchase price of securities when trading on margin. So, for example, a margin trader could purchase $10,000 worth of stocks using their own funds and another $10,000 using the brokerage’s funds. The $10,000 borrowed from the brokerage represents the investor’s margin balance.

You can trade a variety of securities in a margin account, including stocks, and derivatives such as options or futures.

The rules for margin balance forex are slightly different. In forex trading, margin represents collateral or security that an investor must deposit with the brokerage to start trading. The brokerage typically sets this as a percentage of the trading order.


💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

How Margin Balance Works

Margin balance allows investors to borrow money, then repay it to the brokerage with interest. A negative margin balance or margin debit balance represents the amount subject to interest charges. This amount is always either a negative number or $0, depending on how much an investor has outstanding.

Unlike other types of loans, margin balance loans do not have a set repayment schedule. Investors can make payments toward the principal and interest through their brokerage account at a pace convenient for them. They can also deposit cash into their margin accounts or sell off margin securities to reduce their margin balance.

Margin Calls

While there is some flexibility associated with paying off a negative margin balance, investors should understand their interest charges as well as the possibility of being subject to a margin call. Margin calls essentially act as a stopgap risk management tool for the brokerage.

In addition to the minimum margin and the initial margin requirements, investors must observe maintenance margin guidelines. This represents a minimum amount of equity the investor must keep in their account. Under FINRA rules, the maintenance requirement is at least 25% equity, based on the value of the margin account. Some brokerages may raise this to 30%, 40% or more.

Using the previous example, assume that an investor deposits $10,000 of their own money and borrowers $10,000 from their brokerage to invest in marginable securities. Now, say that the investment doesn’t go as planned and the stock’s value drops. That initial $20,000 investment is now worth $10,000. When the margin debit balance of $10,000 is subtracted, that results in a net balance of $0, meaning the trader has zero equity and does not meet the maintenance margin requirements.

At this point, the brokerage may initiate a margin call which would require the investor to deposit more cash into their account in order to continue trading. If an investor can not add more cash to cover the maintenance margin requirement, the brokerage may sell off securities from the account to recoup the negative margin balance.

Negative Margin Balance

A negative margin balance in a margin account represents what’s owed to the brokerage. Depending on the brokerage, the margin debit balance may be listed inside parentheses or have a negative symbol in front of it.

Margin Balance Example

For example, an investor who has a negative margin balance of $12,225 may see one of the following when logging into their account:

•   Margin balance: -$12,225

•   Margin balance: ($12,225)

They both mean the same thing: that investor owes the brokerage $12,225 for trading on margin.

If a trader’s margin balance shows as a positive amount, that means they have a margin credit balance rather than a margin debit balance. A credit balance can occur if an investor sells off shares to clear their negative margin balance but the settlement amount is more than what they owe to the brokerage.

How Margin Balance Is Calculated

Brokerages can lend investors money on margin but in exchange for this convenience, they can charge those investors interest, or margin rates. The level of those rates depends on the brokerage and the type of securities that you’re trading. Many brokerages use a benchmark rate, known as a broker call rate or call money rate, then tier that rate across different margin account balances.

Brokerages can use this as a baseline rate, then add or deduct percentage points. Generally, the larger the margin account balance, the deeper the margin rate discount. Meanwhile, traders who maintain lower margin balances tend to pay higher interest rates. So, an investor with less than $25,000 in their account might pay 7%-8% for margin rates while an investor with over $1 million in their account might pay 4%-5% instead.

Brokerages typically calculate margin interest on a daily basis and charge it to an investor’s account monthly. The interest charges on a margin account can directly affect the net return realized from an investment. Higher margin rates can increase the rate of return needed to break-even on an investment or realize a profit on a stock.

Managing Your Margin Balance

Managing a margin account and margin balances begins with understanding the risks involved, including the possibility of a margin call. The value of your securities can impact your margin balance, and increased volatility could cause the value of margin securities to drop, which could put you below the maintenance margin requirements. You’d then need to deposit more money to your account to continue trading.

Maintaining a cushion of funds inside your margin account could help avoid margin calls. Alternatively, you may keep a reserve of funds elsewhere that you could transfer to your margin account if increased volatility threatens to diminish the value of margin securities in your portfolio.

It’s also important to consider how much money you’re comfortable owing to your brokerage at any given time. Setting a cap on the maximum margin can help you avoid overextending yourself. You can also keep margin balances under control by scheduling regular cash deposits or routinely selling securities to reduce what’s owed. One strategy is to pay enough to cover the interest each month to keep your balance from ballooning.

💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

The Takeaway

A margin balance refers to the balance in an investor’s margin account, which involves borrowing money from a brokerage with which to make trades. That can help investors or traders increase their potential returns, if used wisely.

When you open a brokerage account, you can choose either a cash account or a margin account that allows you to engage in margin trading. Margin trading is a more advanced investment strategy that requires some know-how of the markets and a willingness to accept higher levels of risk.

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About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

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About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.