What Can I Do With A Brokerage Account

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What Can I Do With A Brokerage Account

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If you want to buy and sell stocks, mutual funds, and ETFs and build wealth through the stock market, you’ll want to open a brokerage account. There are several types of brokerage accounts: online or in brick-and-mortar locations, full-service or discounted, and many with financial advisors available, too.

In this guide, we’ll answer “what is a brokerage account” and explain exactly how a brokerage account works.

A brokerage account is an investment account that allows you to buy and sell different types of investment assets. Most popular brokerage firms offer accounts that allow you to invest in stocks, bonds, and exchange-traded funds. Some brokers allow you to build a portfolio in other financial markets, such as forex, commodities, options and even newer asset classes like cryptocurrencies.

There are different types of brokerages to choose from. Some, for example, exist solely or primarily online, which is where you conduct much or all of your business with them. Others have branches across the country, allowing you to walk in and speak face-to-face with a customer service agent. Most of these brokerages with branch networks also offer online access to your accounts and also the ability to trade online.

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Discount brokerage accounts are more of a self-service option for investors. The fees on these accounts are generally very low. This is largely because when making decisions about your investments, you are more or less on your own with an online broker.

Some discount brokers offer access to advisors or investment research, but you shouldn’t expect the same level of commitment as a full-service broker, because you don’t pay as much with a discount brokerage account.

Those who wish to have a close personal connection with a financial advisor at their chosen brokerage firm may prefer a full-service brokerage account. This usually includes the opportunity to consult with in-house experts to help you choose investments, do more financial planning, manage investment taxes, or simply check in when an unexpected market drop makes you nervous.

The downside to full-service brokerage accounts is that they tend to require expensive fees along the way. Some charge high fees, while others charge a percentage of your assets at regular intervals.

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Don’t know where to start? Consider opening an account with a beginner-friendly broker. You can usually do this at zero cost. Do your research and start small – you’ll learn more from losing money in the market than you will from reading entire books on investing.

In addition to the different types of brokerage, there are several different options between brokerage accounts. Here’s how some of these accounts differ:

A taxable account is the main type of account offered by most brokerages. In it, securities are bought and sold, generating capital gains and losses subject to taxes. Fortunately, the tax code allows us to offset gains against losses, thereby reducing our tax impact.

Many brokerages, as well as mutual fund firms and other financial services firms, allow you to open tax-advantaged accounts, such as an Individual Retirement Account (IRA), both traditional and Roth. Some also manage 401(k) plans for multiple employers. So you may have a taxable account at a brokerage, as well as an IRA at the same or another, and also a 401(k) through your job that is being administered through a brokerage.

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Many brokerage accounts must be designated as either cash or margin. A cash account is the simplest option and will serve most investors perfectly. It requires you to have the cash in your account to cover the investments you make. Want to buy $2,000 worth of stock in a company? You need $2,000 in the brokerage account, plus enough to cover the cost of the commission. However, if you sign up for a margin account, you can invest in multiple securities with money you borrow from the brokerage “on margin.” Using margin will amplify both gains and losses, so while it can be attractive, it can also be disastrous. Proceed with caution if considering a marrain account or simply avoid it altogether.

There are also other types of brokerage accounts, such as cleared for options trading, joint accounts, custodial accounts for children, rollover IRAs formed with funds from an old 401(k) account , etc.

You may wonder if you really need a brokerage account, especially if you are a beginner investor. How exactly does the brokerage account help you invest?

The answer lies in the mechanics of investing. Without a brokerage account, if you wanted to buy a certain amount of shares in a company, you would have to somehow find another investor willing to sell exactly that number of shares. You should then agree on a price. That’s a lot of work.

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To make things easier, financial exchanges bring buyers and sellers together. But only members of a particular exchange can use it to do business. By opening a brokerage account with a broker that is a member of the major financial exchanges, you agree that your broker will act as an intermediary for making trades.

It is because of this relationship between you and your broker that you have to be very precise in telling them exactly how you want to invest.

There are many different types of orders you can use in your brokerage account that will get you the results you want:

If you want the best brokerage account, it’s smart to look for the features that are most important to you. Some things to look for in a brokerage include the following:

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Some of these factors are more important than others. For example, if you only trade twice a year, you don’t need to look for very low commission costs. Make a list of all the features you need and how vital they are; then rate each contestant against the individual measurements.

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Brokerage accounts are generally only as safe as the investments you hold in them. If you make a bad investment that loses value, there is no protection to get your money back.

However, most brokers offer protection against problems related to the company itself. The Securities Investor Protection Corporation offers up to $500,000 of protection per account, including a cash limit of $250,000. If your brokerage fails, the SIPC works to replace your missing investments up to these limits. Again, however, the SIPC does not offer any protection if your losses are due to your investments falling in value.

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The most important consideration when finding a brokerage account is whether you will be able to do everything you want with your investments in a way that is comfortable for you. The best brokers offer the support their clients need without being pushy, at the right price.

Fortunately, with so many financial providers offering brokerage accounts right now, you have a very good chance of finding the perfect fit between what a broker offers and the needs you have to meet your financial and investment goals.

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