SIE: Types Of Accounts: Cash Versus Margin

Types of Accounts: Cash versus Margin

Accounts can also be classified by the types of transactions that can be executed in them and how those transactions are paid for. When a customer opens a cash account, she must deposit 100% of the cost of the security in the account by the time the transaction settles. Customers are allowed some slack on this rule and are actually allowed two additional business days after the settlement date to pay for the security. During these additional two days, the broker-dealer will cover any payments for the customer. Thus, customers must pay for the security within four business days after the trade date or the transaction will be cancelled.

In contrast, in a margin account, a customer only has to deposit part of the cost of the security by settlement. The percentage that the customer has to deposit is determined by the Federal Reserve Board (the Fed) under the Securities Exchange Act of 1934. The Federal Reserve Board issues these requirements in a