Cash Trading

Posted in Finance, Accounting and Economics Terms, Total Reads: 346
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Definition: Cash Trading

Cash trading is a type or methodology of investment that mandates the investor to make purchases or buy securities in cash only.

Let us understand what trade is in the first place, trade involves a simple economic activity wherein the involved parties engage in negotiation and then exchange goods and serves that one possess, with goods and services that other possess. To easy one side of exchange money was involved. Now trading is simply the transactions or securities that are traded in a stock Exchange like that Bombay Stock Exchange (BSE).


Trading can be done via two accounts; those are case trading account and margin trading account. So the basic difference between the two is that in cash account, you deposit case and use that to but securities. While in margin account, as and when you want to buy securities, you borrow money from broker and deposit it in the margin account to buy securities.


So Cash trading, basically involves buying and selling of securities using a cash account rather than a margin account. So capital needed for buying the securities is done on a cash to cash basis and does not involve margin or loans. In cash trading, after buying the securities, the investor has to pay in amount in cash within two days. This is different than margin trading as in margin trading you take a loan from the borrower while buying securities, which is very risky, as if you loose on the security, you could lose highly as you have to repay the loan back to the broker also. So in these terms, cash trading is less risky than margin trading.

 

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