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Thursday, October 03, 2019 6:01:45 PM
Cash accounts represent the most conservative choice and do not permit any borrowing of money (trading on margin) from the broker or financial institution. Most investors should be perfectly fine with a cash account.
With this kind of account, you must pay for any trades, in cash, by the required settlement date. This can restrict your ability to place trades more often as you may not have enough available cash settled and ready to deploy within your account at the moment you want to place your next buy order.
Likewise, you will need to wait until trade settlement to make a withdrawal of cash raised from a sell order. Stocks held in a cash account are not lent out by the brokerage to short sellers.
With no margin debt, investors holding securities within a cash account will never be subject to a margin call within their account. Investors also avoid the risk of losing their assets due to rehypothecation exposure, where their broker uses the investor's shares as collateral for the broker's loans from third parties. Additionally, if an investor uses only a cash account, will not have the ability to short any stocks.
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