A brokerage account is opened by an investor with a brokerage firm to deposit funds and place orders for securities. Fees and charges may be deducted from the account balance, and different structures allow for various investment options. Online brokerage accounts tend to offer limited services.
A brokerage account is an account opened by an investor with a specific brokerage firm. The funds are deposited in the account and used as resources to place orders for various securities through the brokerage. As orders are executed, the necessary funds are deducted from the account. Depending on the brokerage account structure, fees and charges for other services offered by the brokerage may also be deducted from the outstanding balance from time to time.
There are several different ways to structure a brokerage account. Some are designed to simply be a repository of resources used to purchase securities. When the investor wants to buy a stock or some other type of security, he directs the brokerage to carry out the transaction and withdraws the necessary funds from the account. Some funds also allow the brokerage to deposit returns such as dividends into the fund, a process that helps ensure funds are always available to assist in the purchase of additional securities. In the event that the investor seeks comprehensive investment advice from the broker, any fees for those services may be deducted from the account balance, or the investor may pay out of pocket from the broker.
A brokerage account can also be structured to function using both the cash deposited in the account and any type of credit line extended by the brokerage to the investor. The line of credit can be used to secure various investments by doing what is called buying on margin. Essentially, the broker deems the investor worthy of a specified amount of credit that can be used in investment transactions. Depending on the regulations governing the structure of the account, the investor may be required to leave a portion of the account’s cash resources at all times, effectively acting as collateral for the margin aspect of the account.
In recent years, the concept of the online brokerage account has attracted a lot of attention. Accounts of this type tend to be very basic, typically allowing an investor to deposit funds into an account and use those funds to place orders with the brokerage. Any fees that are assessed by the brokerage are also deducted from the account balance. Online brokerage accounts tend to be straightforward and provide only a limited range of services. This is in contrast to the traditional full-service brokerage account, which offers everything from financial planning to access to a number of analysis tools and a regular portfolio overview.
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