Are you a buy-and-hold type investor? Perhaps you like to sell premium using defined-risk spreads or naked options? Regardless of your trading style, how do you know which account is right for you? What account types and trading levels does tastytrade provide? Read on, and you'll be filling orders in no time.
First, there are two account types: cash accounts and margin accounts. You can trade within both account types, but there are differences between the trading strategies allowed. The tables displayed below go over the allowable strategies in each account type.
Possibly the simplest account type to understand is a cash account, so let's walk through what a cash account is what you can do with one. Your trading level in a cash account cannot be upgraded since there is only one level.
What can I trade in a cash account?
You may buy stock, buy options, sell cash-secured puts, sell covered calls, and trade cryptocurrencies in a cash account.
What can I not trade in a cash account?
You cannot short stock or ETFs, trade defined-risk spreads, sell uncovered options (calls), and trade futures in a cash account.
Permissible strategies in a cash account
| Individual Cash (Limited) | Limited/Cash* (IRA) | |
|---|---|---|
| Buy Stock | ✔ | ✔ |
| Short Sell Stock | ☓ | ☓ |
| Buy Options | ✔ | ✔ |
| Sell Covered Calls | ✔ | ✔ |
| Sell Cash Secured Puts | ✔ | ✔ |
| Defined-Risk Options Spreads | ☓ | ☓ |
| Sell Uncovered Options | ☓ | ☓ |
| Smalls & Futures | ☓ | ☓ |
| Cryptocurrencies | ✔* | ☓ |
* By default, IRA accounts are provisioned to have margin relief, which allows for defined-risk spread trading. However, if you wish to provision your IRA as a cash account instead, please write to accounts@tastytrade.com..
✔* To trade digital currencies in a cash account, you must enable cryptocurrency trading on your account. For more information, please click here.
There are three options trading levels for margin accounts–Limited, Basic, and The Works. The types of strategies you can do are dependent upon which trading level you have. Standard margin accounts (non-ira) have 2:1 leverage for stock. That means if you have $10,000 of options buying power, your account will have $20,000 of stock buying power (for non-elevated stocks). The trading level you receive is solely based on how you self-report your Investor Profile. If you currently have a margin account and want to upgrade your trading level, please click here.
When you open an IRA account at tastytrade, it is are provisioned as a margin account by default, which allows for defined-risk options spread trading. To learn how to upgrade to IRA The Works so that you can sell naked calls, please click here.
Why do I need a Margin account to trade risk-defined spreads?
A margin account is required when trading any long or short options spread/vertical spread. Margin's primary function in options trading is for relief since short equity options can be exercised by the counterparty (owner of the long option) at any time up until expiration, resulting in an assigned position.
Permissible strategies in a margin account
The table below lays out the options trading strategies and asset classes you can trade based on your margin account trading level.
The Works | IRA The Works (Limited Margin) | Basic (Margin) | Basic IRA (Limited Margin) | Limited | |
|---|---|---|---|---|---|
| Buy Stock | ✔ | ✔ | ✔ | ✔ | ✔ |
| Short Sell Stock | ✔ | ☓ | ☓ | ☓ | |
| Buy Options | ✔ | ✔ | ✔ | ✔ | ✔ |
| Sell Covered Calls | ✔ | ✔ | ✔ | ✔ | ✔ |
| Sell Cash Secured Puts | ☓ | ✔ | ☓ | ✔ | ✔ |
| Defined-Risk Options Spreads | ✔ | ✔ | ✔ | ✔ | ☓ |
| Sell Naked Puts | ✔ | ☓ | ✔ | ☓ | ☓ |
| Sell Naked Calls | ✔ | ✔* | ☓ | ☓ | ☓ |
| Smalls & Futures | ✔ | ✔^ | ☓ | ☓ | ☓ |
| Cryptocurrencies | ✔# | ☓ | ✔# | ☓ | ✔# |
✔*To qualify for uncovered call writing in an IRA account, you must have the suitability requirements for IRA The Works–our highest trading level. To learn more about enabling short calls in an IRA, please click here.
✔^Your account must qualify for IRA The Works to apply for futures trading. For more information, please click here.
✔# To trade digital currencies in a margin account, you must enable cryptocurrency trading on your account. For more information, please click here.
Non-permissible trading activities in an IRA account
The following trading strategies and position types are not allowed in an IRA account.
- No overnight leverage and no borrowing
- No short selling stock
- No cryptocurrency trading (until further notice)