What Is a Cash Account: The Basics
A cash trading account at a brokerage is a type of account that allows investors to trade various assets, such as stocks, ETFs, mutual funds, options, and more. It is a non-margin account, meaning that it does not allow for margin trading. A cash trading account may also be referred to as a cash account or a cash-only account.
Cash Account Requirements
In order to open and maintain a cash trading account, investors must meet certain requirements. Generally, investors must be 18 years of age or older and have the necessary funds to cover all trading costs. Additionally, investors must provide the broker with certain personal information, such as their name, address, Social Security number, and date of birth.
Regulation of a Cash Account
The U.S. government regulates cash trading accounts through the Securities and Exchange Commission (SEC). The SEC is responsible for monitoring the activities of broker-dealers, exchanges, and investment advisors to ensure that they comply with the securities laws. Additionally, the SEC enforces the rules and regulations applicable to cash trading accounts.
What Can a Trader Do In a Cash Account?
In a cash trading account, traders can purchase and sell stocks, ETFs, mutual funds, options, and other similar assets. Additionally, some brokers may offer access to other assets, such as futures, foreign currencies, and commodities. However, it is important to note that not all brokers offer access to these types of assets.
They can also access real-time market data and use advanced trading tools, such as stop-loss orders and limit orders. Additionally, traders can use the account to manage their portfolio, track the performance of their investments, and review their trading history.
The Pattern Day Trader (PDT) Rule
The Pattern Day Trader Rule, or PDT Rule, is a regulation that applies to traders who trade on margin. The PDT Rule requires traders to maintain a minimum of $25,000 in their margin account in order to day trade. The PDT Rule does not apply to cash trading accounts since they do not allow for margin trading.
The Bottom Line
Cash accounts are typically preferred by traders who do not want to take on the risks associated with margin trading, such as the possibility of losing more money than they have in their account, and those who prefer to trade with only the funds they have available.