Cash Trading

If you have an online brokerage account, you transfer money from a bank account to your trading account. You have cash-on-hand. You're not relying on credit, and you're not relying on margin.

You are cash trading. You buy stocks with cash. You buy ETFs with cash. You purchase bonds with cash. Under this system, you have two days to settle your purchases. You get the stock from someone else’s account. And they get your cash.

Cash trading is a far more conservative, less risky method of investing. If you purchase $5,000 in stocks from a cash trading account, the most you can lose is $5,000. Margin can lead to much more significant losses, and you could be forced to hand over collateral to meet your obligations should your positions turn negative.

The primary downside of cash trading is that it can take one or two days to settle trades. Which means that, if you sell a stock, you’re not going to get your cash right away to buy a different stock. You'll have to wait for the trade...and the dust...to settle.