Margins accounts and selling short

I setup an account on buyandhold.com and they mention that they do not accept members to sell short or setting up margin accounts. I've heard this mentioned before on financial programs and periodicals, can anyone explain what these are? Thanks.

bdray

Since no one else has responded to your post:

There are basically two types of accounts you can open with a broker - a cash account or a margin account.

A margin account allows you to borrow from the broker as part of your transactions (paying interest, of course, for the privilege of doing so). For example you can buy stocks on margin - pay for 500 shares and borrow 100 shares from the broker, thereby increasing your leverage in the position. You can sell short. With this approach you have the expectation that a stock price is going to decline, and you wish to profit from that decline. So you borrow the shares from your broker and sell them on the market. At some point in time - and presumably at a lower price - you buy back the shares, returning them to the broker, and keep the difference between your first sell price and the buy-back price, minus the transaction costs and any margin interest.

A margin account also frees your account from federal Regulation T issues. Reg T restricts trading with unsettled funds in cash accounts. Equity transactions take 3 days to clear or settle, and Reg T forbids the purchase and resell of securities using funds from a transaction that has not yet settled. With a margin account, the broker loans the funds necessary for the subsequent purchase/sale.

Some brokerages, such as buyandhold, only offer cash accounts.

Hope this helps.

TJ

It does indeed. Many thanks! It seems there are plenty of ways to make money. And I believe now is the time to do it.