Types Of Online Trading Accounts
There are three basic types of online trading accounts involved with stock trading.
Each specific type has its own pros and cons.
Knowing the capabilities and limitations of each one is important and should be understood whether or not you will be opening them all or not.
In this section I will give a brief overview of each type. At the end of each overview, there will be a link to follow for more detailed information on a separate page of this website.
- A Cash Account is one of the common types of trading accounts. With a "Cash trading account" you can use the total amount of money you have deposited in your account for buying stocks.
Your purchasing power cannot exceed your available funds and your maximum losses are limited to your total account value (cash plus stocks owned). Read more about "Cash Trading Accounts" here:
- A Margin Trading Account is the riskier of the three types of trading accounts. I'm not saying that a margin account should or should not be used, but you should know the risks involved with trading using margin.
Basically with a "Margin Trading Account" you can borrow money from your online brokerage firm to use on your behalf to place trades for buying stocks. Just like a loan from a bank or a credit card, you will be paying interest on the amount you borrow on margin for the time you are using the money.
Keep in mind that the amount of interest you have to pay is small compared to the amount of profits you can make with a profitable trading system.
There is a lot to know about using a "Margin Account". Read more about "Margin trading accounts" here.
Simulated or Virtual Trading Account
- A Simulated Trading Account is an account you can open at most online brokers to buy and sell stocks without using real money. It is sometimes called a "Virtual Trading Account".
Believe it or not, "Simulated Trading Accounts" have their pros and cons just as the other accounts have. Read more about "Simulated Trading Accounts" here: