Cash, Margin, and Buying Power: What's Holding Your Trade

Every trade idea on this site shows a Budget line — what the trade ties up. Beginners routinely misunderstand what that number means, and it's the most common way new accounts get into trouble. This guide fixes that: what cash and margin accounts actually are, what "cash-secured" really promises, and how margin calls happen in real life.

Cash accounts vs margin accounts

A cash account is simple: you can only trade with money you actually have. Sell a cash-secured put with a $95 strike, and the full $9,500 sits reserved in your account. No borrowing, no leverage, no surprises.

A margin account lets the broker lend against your assets. You can sell puts without the full cash on hand — the broker sets aside a fraction as margin instead. This is leverage: the same account controls more risk. Leverage magnifies gains and losses, and it introduces the margin call, covered below.

Neither is morally better. Cash accounts are training wheels with real brakes. Margin accounts are power tools — fine once you know what you're doing, dangerous while you're learning. If you're new, trade in a cash account until the mechanics are boring.

Cash-secured vs naked: the only distinction that matters at first

When you sell a put, one question matters: is the money actually there?

• Cash-secured: the full strike × 100 sits in your account, reserved. If assigned, you buy the shares with cash you already have. The worst case is owning a stock you chose, at a price you chose — but be honest about what follows: the stock can keep falling after assignment, even toward zero. "Cash-secured" limits your loss to the cash you set aside — it doesn’t protect that cash.
• Naked (on margin): only a fraction is reserved. If assigned, you're buying $9,500 of stock with money you don't fully have — the broker fronts the rest, and charges you for the privilege.

Our flagship put strategy is cash-secured for a reason: the worst case is defined in dollars you can see, not leverage you have to model. Naked selling isn't evil — our futures strangles use margin by design — but it should never be your first trade.

What each strategy ties up

Roughly, per contract or per 100 shares:

• Cash-secured put: (strike − premium collected) × 100. A $95 strike sold for $2.00 ties up about $9,300 — the cash you'd need if assigned, minus the premium already in your pocket.
• Put spread: the width between strikes × 100, minus the credit collected. A $5-wide spread ties up about $500 — this is why spreads suit smaller accounts. One wrinkle: most brokers only allow spreads in margin accounts (retirement accounts get a limited-margin exception), so "start in a cash account" and "trade spreads" don't combine — learn the mechanics in cash, then use spreads once you're on margin.
• Covered call: the 100 shares themselves (you already own them).
• Covered strangle: the 100 shares, plus margin on the short put leg.
• Futures strangle: exchange margin on both sides — the broker typically counts the riskier side plus a fraction of the other.

That's what the Budget line on every idea card is telling you. Read it before you read anything else on the card.

Buying power isn't money

Buying power is the broker's running estimate of how much risk your account can take on right now. It is not cash in a vault — it moves. When a position goes against you, the broker demands more margin against it, and your buying power shrinks even though you haven't spent a dollar.

This surprises people: "I had $30,000 of buying power, I used $15,000, and now it says $8,000." Nothing was stolen. Your losing positions are eating margin as they bleed. Which brings us to the call nobody wants.

How margin calls actually happen

A margin call is the broker saying: your account no longer covers your obligations — deposit cash or we start closing your positions. It doesn't happen because you're slightly down. It happens after a real move against leveraged positions, and it happens fast: brokers can liquidate at the worst moment, at market prices, without asking you.

Three rules keep you out of this story:

• Keep a buffer. Never run your account near maximum buying power. If a 20% market drop would trigger a call, you're too big.
• Know your worst case in dollars before entering — that's what the sizing guide is for.
• Respect assignment. A naked put that gets assigned becomes stock bought on margin — the obligation doesn't disappear, it changes shape.

Futures margin in brief

Futures accounts are always margin accounts — there's no cash version. The exchange sets SPAN margin per contract, and your account is marked to market daily: losses are deducted from your balance every single day, no waiting for expiry. Our futures strangles are sized so that a bad day stings but never threatens the account — and the position monitor watches buying power around the clock for exactly this reason.

The short version

• Cash account: trade only with money you have. Margin account: the broker lends against your assets — leverage both ways.
• Cash-secured = the full strike × 100 is sitting there. Naked = only a fraction is reserved. Start cash-secured.
• The Budget line on every idea tells you what's tied up. Read it first.
• Buying power shrinks as positions lose — it's an estimate, not a vault.
• Margin calls mean forced liquidation at the worst time. Buffers and honest sizing are the defense.
• Futures are always margin, marked daily. Size so a bad day stings, never threatens.