Penny Stock Basics: Cash or Margin Account for Trading?

What is bettera cash account or a margin account? Subscribeto get INSTANT alerts when I post a new video outlining my penny stock trading techniques.

You have to understand the differences. So you need margin in order to short sell. A lot of people get confused between leverage and margin. Leverage is where you're betting your entire account and more, borrowing money from your broker, with money that you don't have. Leverage is very dangerous. I believe it is the ruin of most traders, especially newbies. Do not use leverage.

Margin is different where yes, you are borrowing from your broker, but you're borrowing small amounts not your entire account. In order to short sell, in order to bet against stocks, you need a margin account. You cannot short sell stocks in a cash account. OK? Cash means that you cannot borrow. So I would say it's good to have a margin account just so that you could potentially short sell if there's like a giant pump and dump; if there's a stock that's good enough.

As a newbie, I would not be short selling that much. In this market, it's been very hot. Short selling is very tough, especially newbies with small accounts. I would focus primarily on buying. Lately, I've been focusing on dip buying. So, you don't necessarily need a margin account. But, for me, I would just have one just in case because every now and then there might be an amazing stock that you want to short sell and you want to have that opportunity.

The best trades come about randomly. So you want to be as prepared as possible. And that's why I have all margin accounts. Not saying though, that I'm always going to short sell. In fact, I'm short selling very little lately because buying and dip buying are my thing. But I still have that opportunity to have a margin account.

In an ideal world, I would say: e-trade margin account is good enough for me. Also, in order to short sell, you need to find a broker that has good shares to short. That's why I say e-trade and Interactive Brokers. They're not, like, amazing at short selling, but they're good enough and they're big, safe brokerage companies.

I like playing it safe. I like having margin, but I don't like using leverage. I like having a US account and not risking international stuff. If you're in this game long enough, you just want safety first. There's so many different ways to lose money and you have to kind of protect yourself when you can. So for me, that's what I think. Margin account, US, big broker, safest way possible.

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