Cash Position
A cash position is one paid for entirely with your own funds, without borrowing; it also refers to the part of a portfolio held in cash.
A cash position is the part of an account or portfolio held as cash rather than in other assets. It is money ready to use for new trades, a cushion against losses, or a choice to stay out of the market for now.
- Category
- Trading Basics
- Reading time
- 3 min
- Also called
- Cash holding, Cash allocation, Dry powder
- Updated
Cash position in plain words
Cash is one of the three classic building blocks of a portfolio, next to shares and bonds.1
Cash also limits what you can buy: in a cash account, every purchase must be paid in full.2
In other words, without margin, you can only buy what your cash covers.3
How to manage a cash position
Check the balance
See how much cash is free, not tied to open trades.
Set a target
Choose a hypothetical share of the portfolio to keep in cash.
Know the account
In a cash account you cannot borrow from the broker to pay.2
Use it on purpose
Deploy cash only when a planned setup appears.
Refill after trades
Return sale proceeds to cash when a trade closes.
Rebalance
You may need to invest additional money in other asset categories to restore the mix.1
Worked examples
Example 1 — Ready to buy
Trade coveredA hypothetical account holds 2,000 in cash and wants a stock costing 1,500.
| Cash | 2,000 |
| Purchase | 1,500 |
| Left | 500 |
In a cash account the full amount must be paid, so the purchase fits.2
Example 2 — Too little cash
Not enough cashThe same hypothetical account wants a stock costing 3,000.
| Cash | 2,000 |
| Needed | 3,000 |
A cash account investor is not allowed to borrow funds from the broker-dealer to pay, so the trade cannot be placed in full.2
Example 3 — Cushion in a fall
Smaller drawdownA hypothetical portfolio holds 20% cash when stocks fall 10%.
| Cash share | 20% |
| Stock fall | 10% |
| Portfolio fall | 8% |
| Cushion vs all stocks | 2 points smaller |
Cash is one of the assets in an allocation, and here it softened the hit.1
High vs low cash position
| Aspect | High cash | Low cash |
|---|---|---|
| Risk | Lower | Higher |
| Upside | Smaller | Larger |
| Flexibility | High | Low |
| Drag in rallies | Yes | Little |
Where traders use it
Allocation
Setting Portfolio Allocation.
Drawdowns
Softening Drawdown.
Rebalancing
Funding Rebalancing.
Sizing
Supporting Position Sizing.
Advantages and disadvantages
Advantages
- Gives flexibility to act on new setups.
- Reduces portfolio swings.
- Avoids borrowing and margin calls.
- Easy to measure.
Disadvantages
- Cash can lose value to inflation.
- Too much cash misses rallies.
- Unsettled sale proceeds may not be free to use.
- Timing when to deploy cash is hard.
Going deeper
Read as far as you need. Each level builds on the one before it.
Cash as an asset
Beginner
Investor.gov lists cash next to stocks and bonds as an asset to allocate to.1
Cash accounts
Intermediate
A cash account doesn't let you borrow from the broker to pay for trades — that would be margin trading.2 Settlement and account rules differ by country.
Rebalancing
Advanced
To restore your target mix, you may sell some holdings or add new money to the parts that have shrunk.1
Common mistakes
Treating cash as wasted
It has a role.
Going all in
Keep a planned buffer.
Ignoring settlement
Proceeds may not be free at once.
Forgetting inflation
Long-held cash loses buying power.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- A cash position is money held as cash.
- Cash is one of the main asset types.
- Cash accounts require full payment.
- Cash cushions falls but drags in rallies.
- Set a target and rebalance.
Frequently asked questions
Is cash a position?
How much cash should I hold?
Does cash earn interest?
Further learning
- Portfolio Allocation
Allocation.
- Rebalancing
Rebalancing.
- Settlement
Settlement.
- Margin
Margin vs cash.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Investor.gov (SEC). Asset Allocation and Diversification (opens in a new tab) Checked .
- Investor.gov (SEC). Trading in Cash Accounts – Investor Bulletin (opens in a new tab) Checked .
- FINRA. Brokerage Accounts (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.