Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesMedium
A client opens a new cash account with a brokerage firm. Which of the following is NOT a characteristic of a cash account?
- AIt is suitable for customers who prefer not to borrow funds.
- BAll transactions must be paid for in full by the settlement date.
- CSecurities can be purchased on margin.
- DIt is the only type of account allowed for minors.
Show answer & explanationAnswer & explanation
Correct answer: C. Securities can be purchased on margin.
A cash account requires all securities to be paid for in full by the settlement date. Purchasing securities on margin (borrowing funds from the brokerage firm) is a feature of a margin account, not a cash account.
Why the other options are wrong
- A. This accurately describes a client preference that aligns with a cash account.
- B. This is a fundamental characteristic of a cash account.
- D. Minors are typically only allowed to have cash accounts, making this a characteristic.
Cash Account
A brokerage account in which all securities transactions must be paid for in full, and no borrowing of funds (margin) is permitted.
- Requires 100% payment for all purchases.
- No interest charged on debit balances because there are none.
- Suitable for conservative investors or those unable to use margin.
Memory trick: Cash is 'Pay Full', Margin is 'Borrow Some'.