Trading accounts are any investment accounts that hold cash, securities, and investment vehicles. There are a few different types of trading accounts – but which is right for you?
There are many platforms you can use to day trade. I’ve discussed some of them in a few recent articles.
Within the platform you choose to trade, you’ll also need to decide what will be your day trading setup, which involves selecting a type of trading account.
Imagine the diversity of trading accounts compared to the variety of make-up. We know there is a multitude of types of make-up, but only a few will suit our needs and wishes, right?
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Select the type of trading account that suits your individual needs. In this article, I’ll describe the main three: cash, margin, and professional account.
Cash trading account
Cash accounts are the best for the ladies who prefer to play safer or for beginners who are just starting to learn better about day trading.
Day trading with cash accounts, as the name suggests, is day trading with only cash. This “cash” is the capital you have in your broker, which means you can’t trade on the margin.
The cash accounts may not be the best for experienced traders because it tends to limit the profits. However, it also prevents the trader from losing more than she has.
Margin trading account
The margin type of account is for experienced traders and traders who don’t have enough capital to risk.
I sincerely recommend that, if you are a beginner, you don’t use a margin account or the margin-related features on your broker.
This type of account allows you to trade with your cash + your broker’s cash.
This means you’ll be borrowing money to trade.
Trading with a margin account boosts a trader’s profits, but it also boosts her losses. Even if you’re a seasoned trader, check your broker’s rules and contract before trading on the margin.
Generally, all your securities are held as an insurance in case of a loss you can’t afford to pay.
Professional trading account
Any seasoned trader who can prove a certain level of experience and a considerable amount of trading capital can start trading in a professional account.
If you’ve frequently been trading and want to take this professionally from now on, search on you broker if it offers a professional trading account.
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
There are several benefits for a professional trading account. For example, some restrictions that European regulators place on retail traders are removed, which means that traders in the UK can access leverage levels of 1:500, unlike the European Securities and Markets Authority limit of 1:2 for cryptocurrencies and 1:30 for forex.
Conclusion on different types of trading accounts
Whichever trading account you choose, do it based on your personality, goals, and experience!
If you’re a beginner who is starting out with her cash account, check the article 5 Things Needed to Start Day Trading for a few extra tips.
Tell us in the comment section below: Which type of trading account are you currently using?