Is it possible to buy mutual funds using a margin account?

By Richard Loth AAA
A:

Because of the pricing/trading mechanisms used with mutual funds, they cannot be bought and sold like stocks. When trading stocks, an investor can place limit orders, engage in short selling, buy on margin and make trades in the secondary market throughout the day.

Mutual fund shares, on the other hand, are issued to buyers and redeemed from sellers directly by the fund company. Fund share prices are determined once a day after the close of business and are based on the closing prices of the underlying securities in the fund's portfolio. Fund share buy and sell prices are not posted until the day after the transactions occur. A mutual fund's net asset value per share reflects this type of pricing.

Because of these limitations with conventional mutual funds, exchange-traded funds, which are index mutual funds structured and listed as stocks, were originally created in response to professional traders' desire to trade funds with the same facility as stocks.

For related reading, see Introduction To Exchange-Traded Funds.

RELATED FAQS

  1. What's the difference between the coverage ratio and the levered free cash flow to ...

    Learn the differences between the equity evaluation metric, the levered free cash flow to enterprise value ratio and various ...
  2. How do I learn technical skills for trading commodities?

    Learn what resources are available to learn about trading commodities, and understand some of the differences between stocks ...
  3. What are the different sources of business risk?

    Explore the various sources of business risk for companies and learn how critical risk management is to a company's financial ...
  4. How does DuPont Analysis measure financial leverage?

    Learn about how DuPont analysis measures financial leverage using the equity multiplier, and see when the equity multiplier ...
RELATED TERMS
  1. Open Trade Equity (OTE)

    Open trade equity (OTE) is the equity in an open futures contract.
  2. Dividend

    A distribution of a portion of a company's earnings, decided ...
  3. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company ...
  4. Sharpe Ratio

    A ratio developed by Nobel laureate William F. Sharpe to measure ...
  5. Historic Pricing

    A method for calculating the value of an asset using the last ...
  6. Ceded Reinsurance Leverage

    The ratio of ceded insurance balances to policyholders’ surplus. ...

You May Also Like

Related Articles
  1. Mutual Funds & ETFs

    Pros & Cons Of Bond Funds Vs. Bond ETFs

  2. Trading Strategies

    Bucking The Trend With Pattern Failure ...

  3. Mutual Funds & ETFs

    How Janus Capital Makes Money

  4. Brokers

    Private Equity's Returns Are Tempered ...

  5. Professionals

    Mutual Funds: How Many is Too Many?

Trading Center