What is a key feature of cash accounts governed by the Cash Account Rule?

What is a key feature of cash accounts governed by the Cash Account Rule?

• A. Unlimited trading potential
• B. Immediate payment required for purchases
• C. Low fees on trades
• D. Free transfers between accounts

Answer: (B)

The correct choice highlights that cash accounts governed by the Cash Account Rule require immediate payment for purchases. This fundamental aspect ensures that all transactions are settled with cash on hand at the time of the trade. This means that when an investor buys securities, they must fully pay for the transaction immediately, preventing the risk associated with borrowing funds or accumulating debt.

This strict settlement requirement is designed to promote responsible trading practices, reducing the potential for default. It also distinguishes cash accounts from margin accounts, where investors can borrow funds to purchase additional securities, potentially incurring debt in the process.

The other options, while they may pertain to various forms of accounts or trading scenarios, do not reflect the administrative and operational reality of cash accounts under this rule. For example, unlimited trading potential and low fees are characteristics more associated with margin accounts or certain brokerage offerings, while free transfers between accounts involve different regulations and practices not specifically tied to cash accounts.