A cash account is a type of brokerage account in which the investor must pay the full amount for securities purchased. An investor using a cash account is not allowed to borrow funds from his or her broker-dealer in order to pay for transactions in the account (trading on margin).
The credit extension provisions of the Federal Reserve Board’s Regulation T govern an investor’s use of a cash account to purchase securities. In a cash account, an investor must pay for the purchase of a security before selling it. If an investor buys and sells a security before paying for it, the investor is “freeriding” which is not permitted under Regulation T and may require the investor’s broker to “freeze” the investor’s cash account for 90 days. During this 90-day period, an investor may still purchase securities with the cash account, but the investor must fully pay for any purchase on the date of the trade.