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Margin vs Cash Account Webull: A Guide

Updated on January 7, 2024

At a Glance

  • Webull Cash Account: Trades with settled funds, no day-trading rules, but subject to cash settlement rules.
  • Webull Margin Account: Allows leverage and increased buying power, with additional risks.
  • Cash Accounts: No leverage, potential Good Faith Violations if trades made with unsettled funds.
  • Margin Accounts: Require minimum cash or equity balance, offer options trading, and have limitations on day trades.

Webull is a trading platform for ETFs and stocks where cash accounts come with no minimum deposits while there are no trading commissions either. The platform is attractive to many traders, but people might not know what to choose between a margin vs cash account Webull.

Instead of calling the Webull staff in an instant, it’s best to become familiar with what these two different account types have to offer and then make your choice based on that. Luckily, you can easily find out the differences in this article.

What Is a Webull Cash Account?

A Webull cash account is an account that only allows you to trade with settled funds – therefore, there is no leverage offered. They come with no-day trading rules, but all users having a cash account will have to follow the cash settlement rules.

Cash accounts allow you to make trades using the money you deposited, so even if you have an account value of over $2,000, you will not be able to access leverage. Four strategies can be chosen for options, respectively covered calls, long calls, long puts, and cash-secured puts.

On top of that, if you decide to sell a position that you bought using your unsettled funds, a Good Faith Violation would be committed. For instance, if you have $250 and buy a stock for $250, and then later the stock goes to $300 and you sell it, you can take that amount and use it to buy stock ABC. You can sell ABC too if you want to, but that is how you commit the Good Faith Violation.

What Is a Webull Margin Account?

Webull margin accounts are different. They come with leverage, unlike cash accounts. However, they come with extra risks as well. With margin accounts, people can use the securities and funds they own by leveraging them in order to buy extra securities. It is great for increasing returns.

In order to get access to the leverage, you will need to maintain at least $2,000 in cash or at least marginable equity. Margin accounts also let you own up to 4X day trade buying power, as well as up to 2X overnight buying power. 

Accounts with a value of $25,000 or more than that will be eligible to become pattern day traders, which grants them unlimited day trades. With accounts that are under that amount in value, though, only three trades per every five rolling business days can be made. Also, these accounts offer options trading strategy abilities as well.

What’s the Difference?

Now that we’ve established what the two types of accounts are, let’s look into their differences.

Buying Power

Buying power refers to the amount that is available for trades. So, basically, in cash accounts, your buying power is the money you have. It is impossible to borrow funds to do trades.

Meanwhile, Margin accounts allow people to leverage the money and Securities owned in order to buy some extra securities. Buying power comes in two types: Overnight Buying Power and Day-Trade Buying Power. Overnight buying power is represented by the amount you have available to buy securities and keep that position during the night. Margin trading is only accessible for people who have margin accounts with a net account value of under $2,000.

Settlement Rules

Cash accounts will have you focusing on the settled and unsettled funds. Unsettled funds refer to the money you got when liquidating positions over the past two days. It all turns into settled funds once it’s settled.

Settled funds become buying power in an instant and can be withdrawn immediately as well. Unsettled ones will immediately let you use them to make trades. However, if you close the position before the funds you made become settled, you may commit a Good Faith Violation. Two or more of these violations will cause the unsettled funds to be unavailable for trades until the settlement of the closing trade.

At the same time, with margin accounts, you can use unsettled funds for making trades. There will be no risks of committing the violations related to settlement dates. Positions sale proceeds will immediately turn into buying power.

Day Trades

When someone has a margin account, ordinary traders will be able to make about 3-day trades during 5 business days. Making more than that will mark you as a Pattern Day Trader. People who are PDT will have to keep the $25,000 minimum equity in order to be able to make unlimited day trades.

Counting the day trades is not applicable with cash accounts, though. You can make as many settled fund day trades as you wish. But all trades placed need 2 business days until the funds are fully settled, or else they cannot be used to buy and sell again. Making day trades without enough settled funds can quickly lead to Good Faith Violations.

Withdrawal

Cash account withdrawals allow you to withdraw up to the amount you already have there. You can only withdraw when the funds are fully settled, though. Then, for margin accounts, how much you can withdraw will depend on the cash balance and the amount you have available to borrow – this is generated from the margin-held securities.

Webull Cash and Margin Accounts Pros and Cons

Now, let’s look into the advantages and disadvantages of cash and margin accounts:

Pros

Margin accounts bring a lot of buying power. During the day, you have 4X buying power, and overnight, you have 2X buying power. The coolest thing about them is the fact that when your account reaches $25,000 or more in value, you can become a pattern day trader. This is what gives you access to an unlimited number of day trades, allowing you to sell as many securities as you wish, and as often as you’d like to. They also come with options trading strategy capabilities.

Cash trading accounts come with no-day trading rules, and they bring four option strategies with them.

Cons

The downsides with cash accounts include the fact that you cannot access leverage, but also the fact that you can easily incur a Good Faith Violation. You always have to make sure you have settled funds to be able to trade freely, and without that, GFVs will happen very often.

Margin accounts will only allow you to make three-day trades every five business days if your account value is less than $25,000. Also, in order to have access to the leverage, you will need to keep a minimum of $2,000.

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Conclusion

Webull can be amazing for trading as long as you make sure to choose the right type of account. Cash and margin accounts are different and they both come with their pros and cons. Margin accounts let you access leverage, while cash accounts are a bit different and your buying power is the money you have in your account. All in all, each account is directed towards people with different financial needs. So, make sure to use this guide when deciding which account type to pick.

Frequently Asked Questions (FAQ)

What is the difference between a margin account and a cash account?

A margin account allows you to borrow money from the broker to purchase securities, while a cash account requires you to have sufficient funds in the account before making any trades.

How does a margin account work?

In a margin account, you can borrow money from the broker using your existing securities as collateral. This allows you to leverage your investments and potentially increase your buying power.

What are the risks of using a margin account?

Using a margin account involves the risk of losing more money than you initially invested. If the value of your investments declines significantly, you may be required to deposit additional funds to meet margin requirements.

Are there any eligibility requirements for opening a margin account?

Yes, brokers typically have certain eligibility requirements for opening a margin account. These may include minimum account balances, income qualifications, and a good credit history.

What are the advantages of using a cash account?

With a cash account, you can only trade with the funds you have available, which can help you avoid borrowing and the associated interest charges. It also eliminates the risk of margin calls.

Can I switch from a cash account to a margin account?

Yes, in most cases, you can request to switch from a cash account to a margin account. However, you will need to meet the eligibility requirements and complete the necessary paperwork.

How do margin interest rates work?

Margin interest rates are the rates charged by brokers for borrowing money in a margin account. These rates can vary depending on the broker and the amount borrowed.

What is a margin call?

A margin call occurs when the value of your investments falls below a certain threshold set by the broker. It requires you to deposit additional funds or sell securities to meet the margin requirement.

Are there any restrictions on trading with a margin account?

Margin accounts may have certain restrictions, such as minimum equity requirements, limitations on short selling, and restrictions on trading certain securities or penny stocks.

How can I manage the risks of trading with a margin account?

To manage the risks of trading with a margin account, it is important to have a solid understanding of your investments, maintain a diversified portfolio, and carefully monitor your account for margin calls.

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Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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