Do you have a margin account or a cash account? Tim Bohen is covering the pros and cons of each kind to help you decide which is best for you.

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Cash accounts allow you to trade with the amount of money you put into your brokerage account. For example, if you put $1000 in a cash account, your buying power is $1000. A major benefit of using a cash account is that it frees traders from the pattern day trader (PDT) rule.

If you have a cash account, you are not limited to three trades in a rolling five-day period like you are with a margin account. However, most brokers have different settlement periods so they may not settle your cash for a few days.

Most day traders use a margin account because it allows you to buy more stock than you can afford with the cash in your account. Margin accounts also allow traders to short sell.

Different brokers offer different loan leverages for margin accounts. Many brokers will have 2:1, 3:1, or 4:1 leverage. If you're using a broker that's giving you more than 4:1 leverage, you might wanna be cautious using that broker.

For example, if you've got 4:1 leverage, you can buy 4,000 chairs of a $1 stock with only $1,000 in your account. It’s tempting to be able to trade way bigger positions with a margin account.

But remember, margin is a double-sided blade. Margin accounts magnify winners, but it magnifies losers as well. Margin accounts are highly recommended to day traders, especially if you're looking to short and trade momentum stocks.

Always have a trade plan, and cut your losses quickly.

#StocksToTrade #MarginAccount #CashAccount
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