Through this space, we will share with you the timeless principles of stock investing and empower you to be a Sensible Investor. Stock Shastra #3: You just need to look at 6 Financial Parameters to shortlist a wonderful company!
Most cash online trading accounts allow you to purchase stocks, ETF's, bonds, mutual funds and CD's.
With this type of account, no funds are available on loan to purchase additional stocks or investments as in a Margin Account.
Once you sell a stock in a cash account, you usually have to wait for the trade to settle, or clear, before you can use the funds again to purchase anything additional.
If this happens in your account you must make sure the cash becomes available for the order you placed.
If you will be buying stocks and selling them in the same day, you should make yourself familiar with "Day Trading" rules.
The last thing you want to happen is place more than 3 day trades within 5 consecutive days and have your cash account suspended.
Once you are considered a "pattern day trader", you are required to open a Margin Account and have a minimum of $25,000 in your account. A cash account is fine for the investor or trader who will not be "scalping" or "day trading" often. In fact, I thought the discussion on online trading accounts will never see the light of the day.
Your purchasing power is equal to the amount of your cash balance available in your account.
Sometimes with this type of online trading account, you are able to place a buy order for additional stocks before the funds settle from the previous transaction.
If this happens, some brokers will allow a one time occurrence to get by, otherwise your account can be restricted from trading for 90 days.
Shorting is simply a procedure to produce profits from a decline in a stock price but since you are selling the stock first with the assumption that you will be buying the stock later, you will need to have a margin account which acts like a line of credit.
Anybody who does "swing trading" or "buy and hold" longer term investing will be fine with this type of account as long as they are not planning on "shorting" any stocks.
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