What type of brokerage account requires all transactions to be made in cash?

What type of brokerage account requires all transactions to be made in cash?

• A. Margin account
• B. Cash account
• C. Retirement account
• D. Joint brokerage account

Answer: (B)

A cash account is a type of brokerage account that requires all transactions to be made in cash. This means that any purchase of securities must be fully paid for at the time of the transaction, and no borrowed funds can be used. In a cash account, investors can only buy securities with the cash they have deposited, ensuring that they are not leveraging their investments through borrowed money. This method of investing is straightforward and helps investors avoid the risks associated with margin trading, where they could borrow funds to purchase more securities than they can afford. Additionally, a cash account allows for a more conservative approach to investing, making it suitable for individuals who prefer to manage their investments without the complexities and risks associated with margin accounts or other types of credit-based investing strategies. Understanding the nature of cash accounts is fundamental to grasping how different types of brokerage accounts function, particularly the distinctions in their requirements for transaction settlements and the risk levels associated with each.

A cash account is a type of brokerage account that requires all transactions to be made in cash. This means that any purchase of securities must be fully paid for at the time of the transaction, and no borrowed funds can be used. In a cash account, investors can only buy securities with the cash they have deposited, ensuring that they are not leveraging their investments through borrowed money.

This method of investing is straightforward and helps investors avoid the risks associated with margin trading, where they could borrow funds to purchase more securities than they can afford. Additionally, a cash account allows for a more conservative approach to investing, making it suitable for individuals who prefer to manage their investments without the complexities and risks associated with margin accounts or other types of credit-based investing strategies.

Understanding the nature of cash accounts is fundamental to grasping how different types of brokerage accounts function, particularly the distinctions in their requirements for transaction settlements and the risk levels associated with each.