posted
I looked on the ameritrade website and saw it is 2 grand to open a cash or margin account. Is 2 grand all I need to open an margin account or are there other requirements. I 've learned that you don't have to deal with unsettled funds with margin accounts. Since that is the case is there any advantage of having a cash account, why does ameritrade even offer cash accounts wouldn't everyone just prefer a margin account if it is the same requirements to open each, or am I mixed up?
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Both cash accounts and margin accounts have benefits and detriments. Select one according to what will fit your needs best.
Cash accounts, your shares cannot be borrowed for shorting of your stock. You cannot borrow shares to short a stock. Shorting is out. Cash accounts must wait for three day settlement. Rules have been changed, slightly. You can buy another stock or stocks with unsettled funds but you cannot sell that stock or stocks, for a full three business days. Cash accounts remove this temptation of borrowing money. Cash accounts can earn interest. Cash accounts force you to be more conservative with your money.
Margin accounts allow for borrowing of your shares to use for shorting. You can borrow shares to short a stock. Shorting is available. Margin accounts can help when you need cash in a hurry to ride a sudden runner. Margin accounts require interest payments reducing your bottom line. Margin accounts make it easy to borrow money which is usually not good. Margin accounts afford an ability to work around the three day settlement. Margin accounts can lead you into high loss circumstances by having easy money.
I maintain cash accounts, only, and suggest others only use cash accounts. Cash accounts force you to be more responsible, force you to keep a tight budget and do not allow tempting borrowing. Cash accounts will make you a more responsible and a more skilled trader.
posted
sidenote: agree in the main, hed, but traders can't short pennies, so don't get a margin account thinking you can...
also, in a scwoowy, geeky play, if you sell something that's questioned later, I believe you'll be less likely to have ramifications in a cash account... I don't have any "ruling" or regs to cite--simply my observation having watched/played some pretty geeky ones...
-------------------- Nashoba Holba Chepulechi Adventures in microcapitalism...
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"also, in a scwoowy, geeky play, if you sell something that's questioned later, I believe you'll be less likely to have ramifications in a cash account..."
Good point. Cash and carry. Cash accounts are tightly regulated, very strict, chances of being a victim are greatly lessened, not a foolproof thing, but a lot less.
A problem I did not mention, rarely happens, but if delivery of stocks is not made within a reasonable time period, you are still held responsible for paying your margin bill. A margin account is really nothing more than a revolving credit account, what we better know as a credit card.
Using a credit card to buy stocks gives me the creepies! Just seems all wrong.
posted
If I opened a $2000 margin account with scottrade or ameritrade I 've heard you don't have to borrow money from your broker so you don't have to have interest payments. Is this true or do you have to borrow money from your broker in order for it to qualify as a margin account?
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posted
hedfe, you need to carefully read their contract on that and call a help desk person to verify.
Those type of details vary greatly between brokers.
Usually, Ameritrade, Scott's, E*Trade are all just about the same; minor differences. However, the big boys, T.D. Waterhouse and others, there can be major differences in the fine print.
Be sure to read carefully and everything. Be sure to call and talk to a rep to verify you understand all correctly.
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Tex, I am thinking if cash available or portfolio equity falls below a minimum, this might automatically kick in a margin type account.
Another possible is unsettled funds are deducted from cash available. Should a buy be made which exceeds NET available cash, a margin loan might kick in.
Sometimes what is displayed for cash available can be very confusing. A total amount often is shown, but a detailed accounting shows a split between cash available for buying, cash available for withdrawing and cash which is still unsettled.
Watch that fine print!
Before I forget, a big danger with cash accounts is being labeled a day trader. Most web based accounts will warn you when you are about to use unsettled funds in violation of SEC rules. A live feed, a Level 2 feed, often will NOT warn about using unsettled funds. Violate that SEC rule, your account is suspended for ninety days! You are dead; no control over what happens with your stocks.
Being labeled a day trader is quite complex. There are rules available for reading. Look for a "rolling five day" reference to discover how you become labeled a day trader. You must have margin account to escape this problem.
A cash account will make a darn good trader out of you by forcing you to pay attention to all details, no matter how obscure.
I also visit my primary broker's office, and they know if I need to make a deposit, it will be there sooner than they require...
Daytrading...I first believed (once aware) that *any* three roundtrips in a rolling five-day would tag you. I now believe you get tagged via roundtrips in the same issue...
have had more questions re "free rides" than I have about "daytrading" yet, have never been even "threatened" re shutting me down...
btw, have an interesting one to look at--please check back, this thread...
-------------------- Nashoba Holba Chepulechi Adventures in microcapitalism...
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