Investing in Closed-End Funds: Setting up an Account
Description
This article is from the A Guide to Closed-End Funds (CEFs).
Investing in Closed-End Funds: Setting up an Account
Once you have settled on 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.
Read the literature sent to you by the brokerage firm carefully. Some brokers require a minimum or the full sum in your account before they will place your order.
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.
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