What’s the difference between margin and cash account?
A cash account is a type of brokerage account in which the investor must pay the full amount for securities purchased.
A margin account is a brokerage account which allows investors to leverage the funds and securities they already own to purchase additional securities. It provides a great opportunity to leverage your investment to help increase your return. At the same time, it has the risks of magnifying your losses.
|Account Type||Net account value||Day Trade||Margin trade||Short selling|
|Margin account||$0-2000||3 day trades in 5 business days||No||No|
|Margin account||$2,000-25,000||3 day trades in 5 business days||Day trade: up to 4 times|
Overnight：up to 2 times
1. Buying Power
The buying power in a cash account is the maximum dollar amount that is available for placing trades.
Simply put, in a cash account, your money is your buying power. You cannot borrow funds to place trades.
A Margin account allows you to leverage the funds and Securities you already own to purchase additional securities. There are two kinds of buying power: Day-Trade Buying Power (DTBP) and Overnight Buying Power (ONBP)
Day Trade Buying Power refers to the amount available to day trade for the day. Day-trade buying power is equal to the equity in your account at the close of business on the previous day, less the Self-Regulatory Organization(SRO) requirements, multiplied by up to four. Each security will have an SRO requirement, which is based on the exchange minimums allowed.
Overnight buying power refers to the money available to buy securities and hold the position overnight. In the majority of cases, this amount is simply double the cash on hand.
Margin trading is only available for margin accounts with no less than $2,000 net account value.
2. Settlement Rules (Funds Settled)
Stock trades settle 2 business days following the trade date (T+2) and option trades settle 1 business day following the trade date (T+1).
For a cash account, you must pay attention to your settled funds and unsettled funds. Settled funds. Unsettled funds mostly includes cash received from liquidating positions in the last two days. After it is settled, it becomes settled funds.
a) Immediately available as buying power
b) Immediately available to withdraw
a) Immediately available for use to place trades, but closing the position before the funds generated from the closing sale have settled can result in a good-faith violation (GFV)
b) If you have 2 or more GFVs, unsettled funds will be not available for trading until the closing trade has settled
- Alice purchased 100 shares of XYZ stock on Tuesday. The total cost of the purchase was $1,000.
- The same 100 XYZ shares were later sold on Tuesday. The sale generated proceeds of $2,000.
- These proceeds were immediately made available as buying power even though they are not settled (if Alice’s account has no GFV).
- Alice then purchases 100 shares of ABC on Wednesday. These shares must be held until Thursday, when the sale of XYZ settles. Selling before this day would result in a good-faith violation.
Trading in a margin account would allow you to use unsettled funds to place trades. It will avoid all the settlement date related violations that could happen in a cash account. Proceeds from the sale of positions will immediately be available as buying power.
3. Day Trades
A day trade is the purchase and sale of the same stock on the same day.
For a cash account, it is not applicable to count the day trades. You have no limit to make day trades with your settled funds. However, please keep in mind, trades placed in a cash account require 2 business days for the funds to fully settle before they can be used to buy and sell again. (Trade date plus two business days.) Good-faith violations occur when the purchase of a security uses funds that have yet to settle in the account. So, if you make day trades with cash account while you do not have enough settled funds, it is very easy to receive good-faith violations (GFVs).
According to regulatory rules, ordinary investors can make at most 3 day trades within 5 business days. If you make more than 3 day trades within 5 business days, you will be marked as a Pattern Day Trader (PDT).
As a PDT, you must maintain a minimum equity of $25,000 to be eligible for unlimited day trades.
For a cash account, you can withdraw up to the settled cash you have in your account. Funds are not available to withdraw before fully settled.
For a margin account, the total amount available to withdraw includes both your cash balance as well as the amount available to borrow generated from securities held in margin.
Why is my changing account type process still pending?
We had some trouble converting your account from margin to cash so it will take longer than expected. Your account will have to remain restricted for up to 4 more business days. If you would like to liquidate a position, no longer wish to change your account type, or unrestrict your account please contact us.
Can I use my PO box address as my address for my brokerage account?
No. You need to provide a physical address for your brokerage account.
Can I change my account type while waiting for my account opening application to be approved?
Unfortunately, the answer is no. You can switch your account type after your account-opening application being approved.
I am a DACA citizen. Can I open a GPS account?
Unfortunately, DACA individuals are not allowed to make an account here. Thank you for your attention on GPS.
Do you check my credit history? Will applying for a brokerage account with GPS affect my credit history?
We only run a soft inquiry on your credit history for background check purposes. Soft inquiries do not appear on your credit report and will not affect your credit score.
How do I change my personal information?
If you haven’t finished your brokerage application yet, you can go back to previous steps to modify your information. If your application is currently pending or if your account is currently open, please contact us via the Help Center to modify any account information.
I do not have a valid SSN number, can I open an account on GPS?
GPS also accepts valid ITINs (Individual Taxpayer Identification Number).
Why can’t I fill in my W-8BEN information?
Your W-8BEN information is automatically filled for you. All you have to do is confirm the information on the page.
I have permission to work legally in the United States. Can I open a GPS account?
You can apply for a GPS trading account as long as the following two requirements are met.
1. You have a valid SSN or ITIN.
2. You have one of the following types of Visas (E1, E2, E3, F1, H1B, H3, TN1, O1, L1) and it will not expire within 90 days.
How long does it take to open a GPS account?
In most cases, the account application is approved automatically. Sometimes we need to do some additional verification, which may extend the application approval process.
I am a US resident. What requirements do I need to meet in order to open a brokerage account on GPS?
1) Be 18 years or older.
2) Have a valid SSN (Social Security Number).
3) Have a legal residential address in the US or outlying US territories.
4) Hold US citizenship, a US permanent residency card, or a valid US visa.
What visa types are acceptable to open a GPS account?
We accept these Visas along with a valid SSN: E1, E2, E3, F11, H1B, H3, TN1, O1, L1.
I cannot continue my application, and I typed “0” for my dependent. What is going on
The minimum quantity you can put for a dependent is “1”. (The total number should include yourself.)
When will my tax documents be ready?
Your Form 1099 tax documents for the 2020 tax season are generated between January and March of the following year. If you did not liquidate any positions and the dividends you received did not exceed $10 last year, then no tax forms would be generated for that year.