a brokerage account is an investment account held at a licensed brokerage firm an investor deposits funds into their brokerage account and the brokerage firm transacts orders for investments such as stocks bonds mutual funds and exchange traded funds etfs on their behalf 
the assets in investment accounts belong to the investors who normally must report the income derived from the account on their taxes investopedia michela buttignolunderstanding brokerage accountsthere are several types of brokerage accounts and brokerage firms giving investors the chance to choose the model that best suits their financial needs some full service brokers provide extensive investment advice and other services but charge high fees on the other end of the compensation spectrum most online brokers provide a secure interface through which investors can place trade orders they charge relatively low fees for this service robo advisors are digital platforms that offer financial planning and investment services driven by algorithms not people typically they are low cost and require low account opening minimum amounts brokerage accounts may differ in terms of order execution speed analytical tools the scope of tradable assets and the extent to which investors can trade on margin for any type of brokerage the most basic account is a cash account this allows you to buy investments using the money deposited in the account however you can t sell short buy on margin trade options or take advantage of other more sophisticated products to do so you need a margin account with a margin account you can borrow money from your brokerage for additional purchases the securities in your account serve as collateral the brokerage charges regular maintenance interest on this loan and it may request additional money from you immediately if the securities in the account lose too much value this request is known as a margin call if you can t meet a margin call your broker may sell your securities types of brokerage accountsinvestors seeking the expertise of a financial advisor can consider full service brokerage firms such as merrill morgan stanley wells fargo advisors and ubs among others financial advisors are paid to help their clients develop investment plans execute their transactions monitor their investments and the markets and more financial advisors work on either a nondiscretionary basis where clients must approve transactions or on a discretionary basis where transactions don t require prior client approval full service brokerage accounts charge either commissions on trades or advisor fees a commission account generates a fee anytime an investment is bought or sold whether the recommendation came from the client or the advisor and whether the trade is profitable by contrast an advisor fee account involves flat annual fees ranging from 0 5 to 2 of the total account balance 1 in exchange for this fee no commissions are charged when investments are bought or sold investors should discuss compensation models with financial advisors at the onset of relationships do it yourself traders should be careful about trading low volume stocks which may not have enough liquidity to allow investors to enter or exit positions easily investors who favor a do it yourself investment approach might consider a discount brokerage firm these firms charge significantly lower fees than their full service counterparts however discount brokerage firms such as charles schwab schw fidelity fis and e trade etfc offer fewer services in exchange for these lower fees this may suit investors who are most concerned with keeping costs low and executing trades via easy to use online trading platforms for example an investor who decides on a typical discount broker can expect to open a regular taxable brokerage account or retirement account with a 500 minimum required amount little or no commission is charged to buy or sell most stocks options or etfs some discount brokers may charge fees for non u s or thinly traded stocks but this varies from broker to broker the purchase of treasury bonds typically involves no commission but bonds traded in the secondary market may many brokers including schwab fidelity and e trade also offer a wide variety of mutual funds for no transaction cost 234robo advisors are accounts where they not the account holder select the investments using algorithms without human participation moreover those investments are usually restricted to mutual funds or etfs the cost can be around 0 25 to 0 50 of assets under management per year 5 the minimum required to open an account can range from 0 to 500 to over 5 000 robo advisors might be right for people new to investing and experienced investors who prefer a hands off approach to portfolio management those investors who prefer a personal relationship and a choice of services may also want to work with a brokerage firm that s part of their community they could consider a regional firm that falls between full service and discount brokerage firms on the cost scale such companies include raymond james financial inc rjf janney montgomery scott and edward jones these brokerages act as broker dealers and financial advisors they can require a sizable minimum account size and cater to individuals with slightly higher net worth than other brokerages over time though their services tend to be less expensive than those of larger full size brokerages online brokerages are a good choice for investors who prefer to select their own investments and execute their own trades via a website or mobile app however many also offer research and analysis tools to help investors make informed decisions many charge commission on each transaction some charge no commissions robinhood markets inc hood is an online broker that offers commission free trading on stocks etfs and options the firm generates its revenue from payment for order flow pfof margin interest income from cash holdings and more 6 pfof is the compensation a brokerage receives for directing trades to a specific market maker the amount paid is usually a fraction of a penny per share other zero commission brokers include charles schwab fidelity e trade and vanguard a cash brokerage account requires you to deposit cash to start trading this account limits your options to the basics such as purchasing stock for example short selling a stock is not possible within cash accounts cash accounts can be either discount or full service accounts a margin account allows you to borrow money to start trading the broker acts as a lender and the borrowed funds allow for larger trades and more advanced trades such as short selling a stock the investor pays interest on the loaned amount of money the brokerage may demand an immediate deposit of funds from an investor if the value of their account drops below a specific level because of market changes margin accounts can also be discount or full service brokerage accounts while a margin account offers you more flexibility there is some risk involved if you are new to investing it s best to stick with a cash account at first to choose the best brokerage for your needs consider your investing style your short and long term goals the types of investments you seek and the level of service and support you want cost may drive the choice for some novices or highly experienced investors yes brokerage accounts are generally a safe place to keep your money however that doesn t mean that they re without risk the securities investor protection corporation sipc is a nonprofit organization that provides coverage to investors in case their brokerage firm faces financial difficulties or goes bankrupt the sipc safeguards customers assets including cash and securities like stocks and bonds held within a brokerage account at an sipc member firm 7the protection offered by sipc is limited to 500 000 per customer per brokerage firm this coverage includes up to 250 000 protection for cash within the account it s important to note that sipc protection does not cover investment losses because of market fluctuations or poor investment decisions instead it focuses on protecting customers assets in the event of a brokerage firm failure or misconduct most brokerage firms in the u s are members of sipc providing their customers with this added layer of protection for their investments even with sipc protection consider the risks and only invest money you re willing to lose 