A cash account is a brokerage account that requires the account holder to render full payment in cash for any securities purchased by the settlement date. The account holder has not elected to, or has not been allowed to, make purchases of securities on margin. A purchase made on margin is one using funds borrowed from the brokerage.
An investor may choose to use a cash account in order to engage in conservative investing practices that do not involve the use of borrowed funds. Doing so limits the amount of securities that can be purchased, and therefore the upside potential of an investing strategy, but also limits the downside loss if the market prices of securities decline. Given this low-risk use of cash, many investors choose to follow up with lower-risk investment strategies for securities purchased through a cash account.
If a cash account is set up as a trust account (that holds cash in trust for another party, such as a child), the investment strategy is usually especially conservative, since the person initiating and funding the trust may be most interested in maintaining the cash stored in the account to a greater extent than increasing the return on investment of those funds.