Understanding the basics of your cash account
You may find a cash account beneficial for your investing needs because you can use it to buy stocks, bonds, or even mutual funds and these securities are owned by you.
What are cash accounts?
Cash accounts require that all stock purchases be paid in full, on or before the settlement date. The settlement period is the time between the trade date (the date when the transaction occurs) and the settlement date (the date when the payment is made and the transfer of the securities’ ownership occurs).
In general, stocks settle T+2, i.e., trade date, plus two business days.
However, keep in mind that banking holidays, like Columbus Day and Veterans Day, are non-settlement days where the securities markets are open. While you can trade on these days, they are not included in the settlement period.
In cash accounts, selling stock short and selling uncovered options are not permitted.
What about your buying power?
The buying power in a cash account is the maximum dollar amount that is available for placing trades. Settled funds, unsettled funds-available, and unsettled funds-unavailable are used to determine a cash account’s buying power.
- Proceeds from the sale of fully paid for settled securities
- Immediately available for use to enter trades, but closing the position before the funds generated from the closing sale have settled can result in a good-faith violation
- Proceeds from the sale of unsettled securities
- Not available for trading until the closing trade has settled
Hypothetical example for illustrative purposes only, does not include commissions or fees.
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