You want to open a brokerage account and still not decide if a cash account or a margin account is suitable for you? That depends on the risk you’ll like to take when investing. In the following article you can learn more about these accounts, their benefits and dangers and other interesting details. Read this carefully and make a wise decision.
How does it work?
Let’s say that you won a sum of money on a gambling website like Genesis casino India or had some savings you’d like to invest. Now that you hit that point, it’s time to open a margin or a cash account. But, what are the main differences between them and how do they work?
With a cash account, you’ll use your money to buy stocks or trade different things while with a margin account you don’t use your funds. As an investor, you can opt to ask for the help of a third party to borrow money and invest.
Both of these brokerage accounts have their ups and downs. Sometimes the richer ones can turn out to make lots of profit while other times you can lose lots of money and be in debt. Let’s revise for a moment and see how this works.
- As an investor, you’ll have the option to open a brokerage account – cash or margin
- The account has to be opened on a safe platform at your own choice (make sure to be secured and legal)
- Then, you’ll have to buy securities you’ll need your funds or borrow money from other parties
- After picking your favorite stock, cryptocurrencies, and other securities, you can sell or trade to make a profit
As we mentioned earlier, both cash and margin accounts come wrapped around benefits and dangers. At this part, we will talk only about the advantages that apply for both accounts. Read them carefully!
- You’ll use your own money without borrowing from any third parties
- These accounts are friendly for new investors as they can not lose more than their first investment
- You have more flexibility in acquiring securities
- You can buy more securities, having a larger budget
The dangers of a cash account and margin account are related to the risk of losing your money. For instance, if you have a cash account and invest 1000 USD, you can lose your investment but, if you have a margin account, take a loan, invest and lose, you can be in debt.
That will happen because there is a high risk of losing even the money you borrow, and that’s not a good thing. Also, the brokerage has the right to sell your securities when you don’t have too much equity left. The margin accounts are recommended for those who have experience and can make some profit.
Types of margin accounts
Investors should know that for the moment there are only 2 types of margins accounts: a portfolio margin and a day trade margin account.
The portfolio margin – it has lower risks in comparison with the day trade margin account but, it has lots of constrictions to. The Securities Exchange commission also known as SEC have to maintain a minimum equity, have to keep a keen eye and increase the margins of their securities. And lastly, they are obliged to use SEC criterias while making short-term investitions.
The day trade margin – there are even more conditions for the day trade margin, but they are flexible. During the same five-day period, he/she day trades account for more than 6% of total trades. Or, within a 90-day period, he/she makes two unfulfilled day trading calls.
In the beginning, it may look like a drag to open a cash or a margin account, but don’t get worried! If you know the market and you are a smart investor, you won’t have problems while trading no matter the type of account you have. Just keep in mind that it is important to know when to sell to have some profit and when to hold.