What characterizes a 'margin account'?

A margin account is characterized by its ability to allow investors to borrow funds from a brokerage firm to purchase securities. This leverage enables investors to buy more securities than they could with just their own cash, amplifying both potential gains and potential losses. In a margin account, investors must typically maintain a minimum level of equity, known as the maintenance margin, and they have to be aware of the risks associated with borrowing, including margin calls, which require them to deposit additional funds if their account equity falls below a certain level.

The other options do not accurately represent the features of a margin account. A brokerage account that holds only mutual funds does not offer the leverage that defines a margin account. An account solely for trading government securities is also limited in scope and does not encapsulate the borrowing capabilities of margin accounts. Finally, a standard checking account with a bank serves different purposes entirely, mainly related to deposits and withdrawals of cash, without any investment characteristics.