types of account

[McMathews]

Hi all
I came through the article where the author has stated that there are 3 types of account. It stated that the brokerage houses offers cash account, margin account and option account. What type of account must be posses by me in order to trade? Is there any plus and minus of different accounts? Which will be the most suitable for beginners like me? It stated that margin account has more added benefits along with some complications and lengthy procedures. Is that true?
Regards

 

[jd1888]

Hi all
I came through the article where the author has stated that there are 3 types of account. It stated that the brokerage houses offers cash account, margin account and option account. What type of account must be posses by me in order to trade? Is there any plus and minus of different accounts? Which will be the most suitable for beginners like me? It stated that margin account has more added benefits along with some complications and lengthy procedures. Is that true?
Regards

A cash account is where you/anyone would need to hold the same amount of cash plus some extra to trade. Example: You want to trade 10,000 shares in XYZ @ £1.50 a share you would need 10,000 x £1.50 = £15,000 plus some extra (to cover losses).

A margin account is where you/anyone would put up a % of the above £15,000 to trade the same amount of shares. Example: You want to trade 10,000 shares in XYZ @ £1.50 a share, your broker requires 10% margin (for arguments sake) so there for you would need £1,500 plus some extra (to cover losses).

I'm not quite sure what is meant by an options account in your post, but an options account as I know it is where you pay a premium say 10 pence a share (for arguments sake) for the right but not the obligation to buy that stock at a later date for a set amount.

I am not to clued up about options so the above may be incorrect, if so I'm sorry.