An investor who frequently engages in a large number of trades should ideally have which type of account?

An investor who frequently engages in a large number of trades should ideally have which type of account?

• A. Cash account
• B. Margin account
• C. Commission-based account
• D. Fee-based account

Answer: (D)

A fee-based account is often the ideal choice for an investor who engages in a large number of trades due to the structure of its fees. In a fee-based account, the investor pays a flat fee or a fee that is calculated as a percentage of assets under management, rather than per transaction. This can be more cost-effective for active traders, as they avoid stacking up commissions on numerous trades, which can significantly increase the overall trading costs. This structure allows the investor to trade more freely, without worrying about the incremental costs associated with each individual transaction. As a result, active traders can focus on their investment strategies and trading decisions instead of being deterred by commission costs. Other types of accounts, such as cash or margin accounts, charge per transaction or have other associated costs that could accumulate rapidly with a high trading volume. Therefore, for someone who is frequently trading, a fee-based account provides the flexibility and potential for better overall cost management.

A fee-based account is often the ideal choice for an investor who engages in a large number of trades due to the structure of its fees. In a fee-based account, the investor pays a flat fee or a fee that is calculated as a percentage of assets under management, rather than per transaction. This can be more cost-effective for active traders, as they avoid stacking up commissions on numerous trades, which can significantly increase the overall trading costs.

This structure allows the investor to trade more freely, without worrying about the incremental costs associated with each individual transaction. As a result, active traders can focus on their investment strategies and trading decisions instead of being deterred by commission costs.

Other types of accounts, such as cash or margin accounts, charge per transaction or have other associated costs that could accumulate rapidly with a high trading volume. Therefore, for someone who is frequently trading, a fee-based account provides the flexibility and potential for better overall cost management.