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The Basics to Investing in CEFs: Setting up an Account |
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This article is from the Investing Articles: Closed-end Funds series.
Once you have selected a broker, you will need to contact the broker for forms to set up your account. There are two main types of accounts: cash accounts and margin accounts. In a cash account, you pay for the securities (stocks or CEFs) with cash. Usually, most brokers follow a five-day settlement plan (though this will change sometime in 1995 following SEC regulations), that is, the money for the shares of the CEF that you bought must be in your account on the fifth business day following the transaction, and the shares will be recorded as owned by you on the settlement day (this does not mean that you cannot sell the shares the same day or in the intervening days, the sale will also be recorded on the fifth business day following the sale transaction). Some brokers, given specific instructions, may be able to execute same day trades.
The margin account is usually more flexible. Apart from allowing the investor to borrow against securities or cash held in the account, many brokers require you to have a margin account for selling short, and some types of option trades.
Continue to:
CEF, closed-end funds, account, broker, leverage, introduction, financial information, investing, investment tools, reference
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