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Cash account

A Cash account is a brokerage account funded with cash. The investor can use it to buy stocks or other investments only if there is money in the account to cover the purchase.

Expanded Definition

Beginning investors will want to stick with a cash account to avoid the risks of a margin account, where you're allowed to borrow money or shares to invest, and could lose more than you started with. A cash account must have the funds to cover purchases and fees within the agreed-upon time. Short-selling can't be done with a cash account, because shares can't be borrowed.

A cash account involves some patience and attention in these days of instantaneous trades, as you have to make sure you pay for a stock before you sell it. If you violate that timeframe, you are "freeriding," which, you can maybe tell by the cool name, is illegal. Your broker will "freeze" your account for 90 days if you sell a stock before you pay for it.

There are (legal) ways to avoid the freeze.

Your account choices are cash, Regulation T margin, and portfolio margin. Trading with cash accounts is limited to those countries offering products in the denomination of the cash in the account.

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