Cash trading requires that all transactions have to be paid for by the funds available in the account at the time of settlement. It is selling or buying of securities by provide the capital needed to fund the transaction without depend on the use of the margin.

Cash trading is simply the selling and buying of securities using cash on hand rather than borrowed capital or margin. Most brokers offer cash trading accounts as a default account option. Since there is no margin provided, these accounts are much simpler to open and maintain than margin accounts. The lack of margin makes these accounts inappropriate for most active traders but for long term investors may use these accounts as a standard option since they don’t typically buy securities on margin or require rapid trading settlements.

Here are the most common types of potential violations that an investor should be aware of if they are cash trading are:

• Cash liquidation violation

One cannot buy if there is insufficient cash to cover that trade.

• Free Riding

This is another violation that can afflict a cash account. It prohibits investors from buying and selling securities before paying for them from their cash account.

• Good faith violation

This will occur when a cash account buys a stock with unsettled funds and liquidates it prior to settlement.