Brokerage Cash Accounts

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Brokerage Cash Accounts

The most common type of investor securities account is the cash account. Cash accounts are trading accounts in which the investor pays fully for all securities purchased. In other words, the investor cannot borrow funds from the broker-dealer to purchase securities.

Setting up a cash account

In order to establish a cash account, the investor must provide basic personal information, including his or her name, address, and phone number, a tax ID or Social Security number, and proof that he or she is of legal age. Once the account is established, the account owner is responsible for honoring all trades entered into.

Uses of cash accounts

There are a number of different types of accounts that can only be opened as cash accounts. These include personal retirement accounts, such as individual retirement accounts (IRAs); custodial accounts, such as Uniform Gifts to Minors accounts (UGMAs); and corporate retirement accounts. The officers of a corporation typically establish this last account type.

Each time that the investor executes a purchase or sale of a security in a cash account, the broker responsible for handling that trade is paid a commission or fee. The commission is calculated as a percentage of the total transaction value, whereas a fee may be a flat amount per transaction.