posted
Could someone please explain the major account differences. From what I have been told you can get into debt with a margin account and then you are responsable for interest charges. So what would be the benifit of a margin account?
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posted
The benefit of a margin account, even if you don't use margin, is you can "daytrade" in it. For instance, you can buy and sell a stock within a single day, or two days and your funds are immediately available to trade again.
In a cash account, you could buy and then sell a stock in a single day, but once you sell the stock, those funds take 3 days to "clear", meaning you can't use those funds to buy another stock until they do so.
If you do use margin (borrow money) to buy stocks, then yes, since you are borrowing money, you are charged interest, and it can be very risky if you get into a losing position.
I beg to differ with you on the 3 day rule. If you sell a stock in a cash account you can buy other stocks with those funds the same day however you can't sell them until the original sale has cleared its 3 day hurdle. The only problem with this is if the stock you do buy starts to tank you will have to wait 3 days before you can sell it.
I have done this several times over and never had a problem. It may be that some companies won't allow you to do this. I was with Scottrade with a cash account and never had a problem buying stock with funds from a sale. I only had a problem once when a stock was falling and couldn't get out of it for a couple of days. That's when I decided to change to a Margin acount and used caution not to excede my cash balance to stay away from the interest charges.
I would like to add that the interest isn't to bad for some companies. I am with Freetrade and used 2000 of my margin for 2 days and it cost me 31 cents. I made 250 on the deal so it was worth it. However Jeremy is right in the aspect that it is very risky so please use caution with the margin portion and make sure you are using the cash only when making trades if you don't want to use the Margin and pay interest.
posted
It must be different with ameritrade then, because with their 3-day rule, you could not buy right away, but you could sell at any time.
I guess it doesn't matter either way, they simply have to obide by the SEC rules, so one way or another they are going to lock your funds up for the 3-day holding period, either by not allowing you to buy, or not allowing you to sell. So, it would be best to check with your broker to see how they handle that.
posted
Steve, I've had the same experience as Jeremy before I switched to a margin account. Perhaps it differs from broker to broker but with Ameritrade, with a cash account, if you sell something within 24 hours of buying it, you have a 3 day waiting period before those funds are available for anything, be it withdrawl or another purchase. At least that's how it was a half year or so ago.
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posted
Scottrade was weird in the past. It used to be that most of the time you wouldnt get the funds back, but sometimes you would. Now you always get it back, but with the 3-day restriction on the 2nd sale until the first sale clears. But actually, if you really wanted to, according to Scottrade's rules, you COULD sell the 2nd amount of stock -- but you would be in violation of the Nasdaq rules -- and after 2 violations your account is restricted permanently to only using cleared funds. But one can avoid the violation if you deposit cash to cover the sales before the original 3 days are up.
[This message has been edited by Phoenixx (edited August 09, 2004).]
[This message has been edited by Phoenixx (edited August 09, 2004).]
quote:Originally posted by Jeremy: It must be different with ameritrade then, because with their 3-day rule, you could not buy right away, but you could sell at any time.
I guess it doesn't matter either way, they simply have to obide by the SEC rules, so one way or another they are going to lock your funds up for the 3-day holding period, either by not allowing you to buy, or not allowing you to sell. So, it would be best to check with your broker to see how they handle that.
You can buy right away with ameritrade IF you have held the position for three or more days before you sell it.
posted
so if you have a margin account do you always have to pay interst... Could you use a margin account the same way you would use a cash account if you didnt borrow money??
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posted
if u round trip the position ( buy and sell the same day ), there is no interest charge- at least w/ ameritrade. Also, stocks that are under 5.00 u have to use available cash- they r not marginable. stocks under 5.00 cannot be shorted either- hope that helps.
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