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Cash versus Margin: Pros and Cons

Webull

Every day, we get calls from clients asking what type of account they are trading with (to check: tap the Webull logo, then tap details in the upper right corner, then scroll all the way down).  Lots of people ask “is this the right account type for me?” and, well, it depends.  Different people trade differently.  

Cash accounts and Margin accounts operate differently, and there are different rules associated with each. This article will help you compare and contrast the two account types.

Ps: To find out what account type you have you can click on the top left corner of your homepage to see your different accounts and what type they are!

Margin Accounts

Margin accounts offer leverage, and carry additional risks.  

· With a margin account, you may have up to 4X day trade buying power, and up to 2X overnight buying power. This means that if your account value is $3,000, you could use up to $12,000 to day trade, and hold up to $6,000 in positions overnight.  

· You need to maintain a minimum of $2,000 of cash and/or marginable equity in a margin account to access the leverage (2X & 4X buying power).

· If your account value is $25,000 or more, you meet the criteria to be a pattern day trader. This means that you have unlimited day trades.  You can buy and sell as many securities as you like as many times as you like, every day. If your account value is less than $25,000, you can make up to three day trades per every five rolling business days. The Webull platform helps you keep track of those day trades.

· You may short eligible securities in your margin account if you maintain an account value above the minimum threshold of $2,000.  

· Margin accounts offer all option trading strategy capabilities.

Cash Accounts

Cash accounts do not offer leverage, and you can only trade with settled funds.

· With a cash account, you trade with the money you deposit.  You are not able to access leverage even if your account value is above $2,000.

· Day trading rules do not apply to cash accounts, but you must abide by cash settlement rules.

· If you sell a position that you purchased with unsettled funds in your cash account, you will incur a Good Faith Violation.  For example, say you have a cash account with $180 in it and you buy stock XYZ today for $180. It goes up to $200 an hour later and you decide to sell it. Now you take that $200 in proceeds and use it to buy stock ABC.  If you wanted to sell ABC, you will be able to do so. However, doing so would result in a Good Faith Violation.

· Cash accounts offer four options strategies: long puts, long calls, covered calls, and cash-secured puts.

Overall

Cash and Margin accounts offer two different ways to trade. What you decide to use depends solely on you and your investment goals. We hope this comparison helps clarify the differences between the two account types. Webull also supports opening one of each account type. If you choose to do so, please note that the Login IDs for the two accounts must be different (i.e., if you use your email address to log into your margin account, you must use a different email or your phone number to log into your cash account).

source: https://www.webull.com/blog/39-Cash-versus-Margin-Pros-and-Cons