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01. Basic

Day Trading with Cash vs. Margin

Day trading with a cash account means just that. You are only using the cash you have in your account.

With a margin account you have the option to use leverage or margin to increase your buying power by borrowing funds from your broker.

Below are the main differences between a cash account and margin account when it comes to day trading.

Cash Account

  • You can day trade as much as you want as long as your funds are settled (takes two days from trade date to settle, click the cash account link for more info)
  • You can only trade with the amount of cash you have in the account, no margin
  • Placing day trades with unsettled funds could result in the account being suspended

Margin Account

  • Can only place 3 day trades in a 5 business day period if you are under $25k
  • You have 2x the buying power for accounts under $25k and 4x the buying power for accounts over $25k
  • You can buy more shares than cash in your account since you are granted leverage
  • You can lose more than you have in your account since you’re trading on borrowed funds

As you can see there are some major differences but most day traders trade on margin due to ability to leverage their account and trade bigger size.

This makes scalping smaller moves more profitable.

Just take note of the risks involved and manage your trades appropriately!

Click here for more information on the difference between a margin account and cash account.

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