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.
Related or Semi-related Video
Finance: What is Cash on Delivery (COD)?41 Views
Finance a la shmoop what is cash-on-delivery?
or CoD well if you have a deadbeat buyer who's taken forever to pay you in [Danny Deadbeat laying on sofa]
the past think remember Popeye and wimpy borrowing money for burgers next Tuesday
when he actually never pays you'll eventually have to make that customer
that deadbeat a COD status purchaser well CoD has nothing to do with cheap
fish rather it stands for cash on delivery like you get cash when the good
is delivered and it means that the postal person or UPS gal or FedEx dude
has to collect the cash you are owed before they will actually leave the [Cash transfers to mail people]
package being shipped at the warehouse on your doorstep or van parked you know
down by the river if a client has such bad credit or has such a miserable
payment record that they have to be put on COD status well you may really have
to re-evaluate your relationship there COD also carries charges and often
they're big because a postal worker may have to ring the door eight times before [Postal worker ringing door bell]
finding the deadbeat at home and then even if he is home well it's uncertain
whether or not he'll have the ready cash to pay for whatever goods he just
ordered and sometimes you'd have better odds of getting money out of this thing [Pile of fish appear]
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