A brokerage account with no borrowing: every purchase must be paid for in full with settled funds, which removes leverage and introduces settlement timing rules.
No margin loan means no margin-call, no forced liquidation and no pattern-day-trader-rule — the rule only applies to margin accounts. It also means no shorting, since shorting requires borrowing, and no trading with unsettled-funds.
The constraints that bite are good-faith-violations and free-riding, both of which arise from using money that has not settled yet.
Example: $10,000 in a cash account. You buy and sell a stock on Monday, realising $10,300. Under t-plus-one the proceeds settle Tuesday. Buying again Monday with those proceeds is allowed, but selling that second position before Tuesday is a good-faith violation. Three in twelve months and the account is restricted to settled cash for 90 days.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
Educational only, not advice. Spotted an error? Post in Site Feedback.