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. How does short selling help the market and investors?

    Find out how short sellers provide a service to the market by acting as a check against overvalued companies and exposing ...
  2. What is the difference between capitalization rate and rent?

    Find out the difference between capitalization rate and rent and why they are so important to making wise investments.
  3. What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being ...
  4. What are the risks involved in keeping my money in a money market account?

    Setting aside funds in a money market account can be a safe investment strategy, but investors should be aware of the risks ...
RELATED TERMS
  1. Historic Pricing

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

    The ratio of ceded insurance balances to policyholders’ surplus. ...
  3. David Einhorn

    Known for his short selling strategy, activist investor David ...
  4. Bear Fund

    A mutual fund designed to provide higher returns when the market ...
  5. Ulcer Index - UI

    An indicator developed by Peter G. Martin and Byron B. McCann ...
  6. Short Call

    A type of strategy regarding a call option, which is a contract ...

You May Also Like

Related Articles
  1. Stock Analysis

    Why This Bond Fund Should Be in Your ...

  2. Investing

    How to Short Alibaba

  3. Stock Analysis

    Is PIMCO's Commodity Strategy (PCRDX) ...

  4. Stock Analysis

    Time to Look at PIMCO's Total Return ...

  5. Trading Strategies

    Risk Management Techniques For Shorting ...

Trading Center