What Is a Cash Account and How to Open a Cash Account in Canada?

In today's globalized financial market, investors are seeking efficient and convenient tools to manage and grow their wealth. moomoo is a securities trading platform that provides services in Canada and has won the favor of many investors with its advanced technology and user-friendly interface. For users who wish to invest through moomoo, opening a cash account is often the first step. A cash account not only provides investors with a secure place to store funds but also lays the foundation for trading stocks, ETFs, and other securities.

This article will provide a detailed introduction to what a cash account on moomoo is and how to successfully open such an account in Canada, helping investors embark on a journey of wealth growth.

What is a Cash Account?

A cash account is a type of brokerage account that enables the easy deposit and withdrawal of funds, ensuring that investors have sufficient liquidity to conduct trades and manage their investments.

Unlike margin accounts, cash accounts do not permit borrowing from the broker to purchase securities; all transactions must be conducted entirely with the own funds in the account. Additionally, cash accounts are not permitted to engage in short selling.

How does a Cash Account Work?

Depositing Funds

Since all transactions in a cash account must be made with one's own capital, it is necessary to deposit sufficient funds before trading. There are various methods to deposit funds, such as online bill payment, ETF electronic funds transfer, and wire transfer. Each method has its own characteristics, and for more details, you can click on How to Choose a Deposit Method.

Securities Trading

A cash account can be used to trade a variety of securities, among which investors may incur commissions when trading stocks and ETFs. To understand the fee structure of moomoo, one can refer to the CA Market Fee Schedule.

It should be noted that there are differences between the trading and settlement systems in Canada.

T+0 Trading: Canadian stocks allow investors to sell the stocks they have bought on the same day, which is known as intraday trading.

T+1 Settlement: The settlement period for Canadian stocks is T+1. This means that the delivery of funds and stocks will be completed on the first business day following the transaction date. For more details, one can refer to About CA Stock Moving to T+1 Settlement.

Funds Withdrawal

You can transfer funds from your cash account to your bank account. The withdrawal process typically takes 1-3 business days.

Interest Earnings

Certain cash accounts pay interest on the balance within the account. Although the interest rates are usually low, this represents a way to earn a return on idle funds. Using moomoo's cash account will also entitle you to this benefit. Additionally, by using moomoo, you can join the Cash Sweep program, which allows idle funds to earn returns, and Cash Sweep is not only available for cash accounts but also provides the capability for margin accounts to earn returns on idle funds. To learn more, you can click on Moomoo Cash Sweep.

What Type of Investments can You Hold in a Cash Account?

As a flexible brokerage account, a cash account enables investors to engage in a variety of securities investments, aiding in the achievement of a diversified investment portfolio. This includes, but is not limited to, the following types:

Stocks

In Canada, a cash account can invest in stocks across multiple markets, including the Canadian stock market, the US stock market, and some other international stock markets. For specific details, one can consult the broker.

Exchange-Traded Funds (ETFs)

Funds listed on stock exchanges are similar to individual stocks. ETFs can track indices, sectors, commodities, or other assets.

Bonds

Including government bonds and corporate bonds.

Mutual Funds

Including both open-end and closed-end mutual funds.

Open-end mutual funds: Funds that issue new shares or redeem shares as investors invest and withdraw money.

Closed-end mutual funds: Funds that issue a fixed number of shares.

Options

Including call options and put options.

Call options: Give the holder the right, but not the obligation, to buy the underlying asset at a specific price within a certain period.

Put options: Give the holder the right, but not the obligation, to sell the underlying asset at a specific price within a certain period.

Benefits of a Cash Account

Simplicity

Cash accounts are straightforward to operate, with simple and transparent transaction processes and fee structures, making them easy to understand and manage.

Low Risk

Cash accounts prohibit the use of borrowed funds for trading, reducing the risks associated with leverage. Additionally, there are no margin calls, which avoids the risk of forced liquidation due to market fluctuations.

Flexible Fund Management

Funds in the account can be withdrawn at any time without restrictions.

Cash Account vs. Margin Account

Comparing cash accounts with margin accounts, the following summary can be made.

Cash Accounts

Definition: A cash account is the simplest type of brokerage account. When you purchase securities in a cash account, you must pay for the transaction in full, using your own funds.

Limitations: You cannot borrow money from the broker to buy securities. Additionally, short selling is not allowed in cash accounts.

Advantages: The risk is lower because you are using your own funds, and losses will not exceed your investment amount. Cash accounts are subject to fewer regulatory requirements compared to margin accounts.

Disadvantages: Due to the lack of leverage, your buying power is limited. If you do not have enough cash in your account, you cannot execute trades.

Margin Accounts

Definition: A margin account allows you to borrow money from the brokerage to buy securities or borrow shares to short sell. This is known as margin trading.

Leverage: With a margin account, you can control more securities with less of your own capital, thereby amplifying gains and losses.

Interest: You will need to pay interest in the borrowed funds, which increases your costs.

Limitations: Brokers require a certain percentage of equity or margin in the account, known as maintenance margin. If the equity of the account falls below this level, you may receive a margin call, requiring you to deposit additional funds.

Advantages: They offer greater flexibility and the potential for higher returns due to the use of leverage.

Disadvantages: The risks are higher because losses can exceed the initial investment, potential losses are greater, and there is the risk of being forced to sell securities due to an inability to meet margin calls.

Main Differences

Source of Funds: In a cash account, all purchases must be funded by the investor's own cash. In a margin account, purchases can be partially funded by borrowed money.

Short Selling: Cash accounts do not allow short selling, while margin accounts do.

Regulation: Margin accounts are subject to stricter regulations, including requirements for the amount of leverage that can be used and minimum margin requirements.

Interest: There is no interest expense in a cash account because you are not borrowing money. In a margin account, you will need to pay interest in the borrowed funds.

How to Open a Cash Account on moomoo Canada?

Step1: Visit the moomoo Website

Open your browser and visit moomoo's official website moomoo Canada, find the cash account page in the navigation menu.

Alternatively, you can download the moomoo App on your mobile phone.

Step 2： Register an Account

Click on the "Open an Account" button on the page. Then follow the guidance to complete the registration process. The registration process involves identity verification, information collection, risk assessment, etc.

Notes

Account Selection: When choosing an account during the registration process, select a cash account.

Review Time: Account review may take a few business days, so please be patient.

Compliance Requirements: Ensure that all provided information is true and valid to avoid delays in the review process.