Account Types

Investment Account
By nature, an investment account is a conservative portfolio intended for long-term capital appreciation or for a steady and secure income from dividends or interest. For the most part, it would be unsuitable for a broker or advisor to recommend the purchase of speculative securities or to engage in active trading when an investor has an investment account.

Trading Account or Speculative Account
Trading accounts and speculative accounts are both directed towards taking short-term profits by means of aggressive trading activity. Examples of investment strategies indicative of these types of accounts are quick in-and-out trading, even “day-trading”, coupled with heavy leveraging by use of margin, options, puts, calls, and straddles. The basic difference between these accounts is that speculating is thought of as being even more aggressive than trading. Of course, neither account would be suitable for any investor who told their broker they had only conservative investment objectives.

Options Account
An options account is inherently speculative, especially when one goes beyond “covered writing” – which often leads to uncovered options speculations. As a general rule, recommendations to buy or sell options are unsuitable for a conservative investor.

Margin Account
A margin account, contrary to what many stockbrokers will claim, is inherently speculative. Consistent use of margin debt (as opposed to an isolated transaction on margin) is not suitable in an otherwise conservative investment account.

Short Account
A short account is one in which short sales take place: a short sale is a sale of a security not owned by the seller at the time of sale. In this situation there is always a potential open-ended liability, namely the market price for the security has increased when it is time to “cover” the short position. For this reason, short sales are considered inherently speculative and accordingly unsuitable for investment accounts.