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Webull is an interesting stock and ETF trading platform that has no minimum deposit on cash accounts and they don’t charge trading commissions. This platform was created by financial experts for active traders that want access to better tools than they can find on other free trading platforms, including research agency ratings, financial calendars, technical indicators, live data, and more.
Webull places all this data at your fingertips and the simple design makes it an ideal fit for day traders. But, this may not be the best option for newer or long-term passive investors because they may be overwhelmed by the platform.
Webull has two types of accounts, “Cash” and “Margin” and the user is not restricted and they can have both if needed. Every user will have a unique login for their cash and/or margin accounts.
In this article, we’ll look at Webull margin vs. cash accounts and the key differences so you can choose the type of account that best meets your needs.
Webull is currently offering new users up to 12 free stocks for trying the platform. You’ll get two free stocks (each worth $3 – $300) for signing up. Deposit any amount to get 4-10 more free stocks worth $7-$3,000 each. Sign up for Webull through this link to be eligible for the bonus.
Read our Webull review for more details on the platform.
A Webull cash account is the standard type of account and it allows the user to trade using settled funds and no leverage is offered. All Webull cash account users must abide by the cash settlement and no-day trading rules. The cash account allows the user to make trades with funds that have been deposited into the account. Even accounts with a value of $2,000 or more cannot access leverage.
There are four strategies that can be chosen for options. They are long and covered calls, and long and cash-secured puts. The user can sell a position that they purchased with unsettled funds, but a Good Faith Violation is committed.
For example: If you used $250 to purchase a $250 stock and then it goes up to $300, you could sell it and use that money to purchase stock A, B or C. Then you can go ahead and sell that stock too before the funds have settled in your account (which usually takes a few business days), this is how the Good Faith Violation is committed.
Webull is a free investing app that provides advanced reporting tools and allows you to make free trades of stocks, ETFs, and options. Right now Webull is offering up to 12 free stocks when you signup through our link (use the button below) and deposit any amount.
- Commission-free trades of stocks, ETFs, options, and cryptocurrency
- Buy fractional shares for any amount
- Extended trading hours
- Advanced reporting tools
- IRAs now available
- 24/7 customer service
A Webull margin account operates differently. They have leverage and that comes with some additional risks that should be considered carefully.
The margin account can be used to leverage the funds and securities that are already owned to buy extra securities. This may be effective at increasing returns, but the account must maintain a $2,000 minimum in cash or at least some marginable equity.
These accounts allow the user to own up to four times the day trade buying power and two times the overnight buying power. If the Webull margin account has a value of $25,000 or more, it’s eligible for pattern day trading. This allows the user to conduct unlimited day trades, which is far more than the standard three daily trades per five rolling business days for lesser amounts. These accounts also facilitate options trading strategy capabilities as well.
It’s important to note that trading on margin increases risk. As a result, margin accounts are not recommended for inexperienced traders.
Now that you have a clearer understanding of these two account types, it’s time to look at the four main differences between them in more detail. They are:
1. Buying Power
This term refers to the amount that you have available for trading. In the Webull cash account, your buying power would be the money you have in the account. This account would not allow you to borrow funds from elsewhere to do any trading.
The margin accounts allow you to leverage your money and any owned securities to buy additional securities. The available buying power is available in two different types: “Day-Trading Buying Power” and “Overnight Buying Power”.
Day-Trading Buying Power is self-explanatory, but Overnight Buying Power works differently. This is the amount that you have made available to purchase securities and maintain that position throughout the night.
Margin trading is only available for people with a margin account that holds a net value of over $2,000.
2. Day Trades
Cash account users can make as many settled fund day trades as they like, but every trade will need at least two business days to settle the funds. This means that they cannot be used to buy and/or sell again until they’re settled. Any attempt to make a day trade without sufficient settled funds to finance the transaction will lead to Good Faith Violations.
With a margin account, an ordinary trader can make three day trades during five business days. If more trades are made, that will mark you as a Pattern Day Trader (PDT). A person marked as PDT must maintain the $25,000 minimum equity required to make unlimited day trades.
For more details, please read Can You Day Trade on Webull?
3. Settlement Rules
The cash account makes you focus on unsettled and settled funds to trade. Unsettled funds are the money that you received when you liquidate positions over the past two days only. These funds turn into settled funds once they are fully settled, they become buying power and they can be withdrawn instantly.
The unsettled funds can be used to make trades, but if the position is closed before the funds are settled a Good Faith Violation may be committed. Committing two or more violations will make the unsettled funds unavailable for trading until the trades are settled and closed.
A margin account allows you to use unsettled funds to make trades. There are no violation risks related to the settlement dates. The proceeds of position sales will be immediately turned into buying power.
The cash account withdrawals can be withdrawn up to the amount that you have in the account. But, the funds can only be withdrawn if they’re fully settled.
Margin accounts work differently, the amount that can be withdrawn depends on the cash balance and the amount you can borrow. The borrowing amount is based on the margin-held securities.
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To summarize, let’s take a look at the key features of Webull cash and margin accounts:
- Day trading rules are not applicable, but cash settlement rules must be followed.
- These accounts offer no leverage, you can only trade with your settled funds.
- Trades are made with money you deposit into the account and you cannot access leverage even if the value of the account is at or exceeds $2,000.
- There are four options strategies: long calls, long puts, cash-secured puts, and covered calls.
- Selling a position that was purchased with unsettled funds from your cash account will cause a Good Faith Violation. As an example: your cash account balance is $180, you buy a stock, it goes to $200 an hour later and you sell it. You then take the $200 and purchase another stock, and you could sell that if you wish. But, in this scenario you would have committed a Good Faith Violation because you sold it before the money used to buy the stock had settled.
- Margin accounts do allow leverage, but they have additional risks to consider.
- A minimum of $2,000 in cash or equity is needed to access the 2x or 4x buying power.
- It’s possible to have 4x day trading power and 2x overnight buying power. As an example: A margin account value of $4,000 could use up to $16,000 for day trading and up to $8,000 for positions overnight.
- A margin account value of $25,000 or more meets the criteria to become a pattern day trader. This allows you to make unlimited day trades every day. If the account value is less than $25,000, you can only make up to three day trades for each five rolling business days. Keeping track of these day trades is simple when you use the Webull platform.
- The Webull margin account has the capability for option trading strategies.
- You can short all eligible securities in the margin account if the minimum account value is kept above $2,000.
Webull has garnered a solid reputation as a reliable online trading platform among experienced traders. If you’re new to trading and investing or your risk threshold is lower, then it’s a better idea to open a Webull cash account. This will give you access to the tools you need and you can explore other options later when you have more experience.
If you’re a day trading pro and you have a deeper understanding of the risks, then a margin account may be the best fit. Webull has a margin account that can give you 3x of your total cash buying power which is impressive. But, this can be a risky approach. It’s important to do your due diligence and proceed with caution.
For more on Webull, please see:
- Does Webull Have Instant Deposit?
- Does Webull Have Fractional Shares?
- What is Paper Trading on Webull?
- How Does Webull Make Money?