What is a cash account?
Investors can open a cash account to trade stocks, ETFs, mutual funds, etc. However, when you buy or sell securities in a cash account, it usually takes 2 business days for the transaction to settle.
“Settlement” is set by federal securities regulations and refers to the official transfer of the securities to the buyer’s account and the cash to the seller’s account. The settlement period is 2 business days after the trade date for stock transactions and 1 business day after the trade date for option transactions. For examples, if you purchased a stock on Monday, the transaction will settle on Wednesday; if you closed an option position on Thursday, the transaction will settle on Friday.
There are cash account rules that investors need to follow while trading in a cash account. Transactions involving unsettled funds can sometimes lead to a Good Faith Violation and a 90-Day Restriction for the account.