A brokerage account is an investment account you open with a broker, a firm licensed to buy and sell securities for you. It's where you deposit money and hold stocks, ETFs, mutual funds and bonds. Opening one is the first step to buying stocks.
Types of accounts
- Individual taxable account: the standard account. No contribution limits and you can withdraw any time, but you pay tax on dividends and on gains when you sell. See capital gains tax on stocks.
- Joint account: owned by two or more people, often spouses.
- Retirement accounts (IRAs): Roth and traditional IRAs offer tax advantages in exchange for limits on contributions and withdrawals. See Roth vs. traditional IRA.
- Custodial accounts: managed by an adult for a child until the child comes of age.
Cash vs. margin accounts
In a cash account, you can only buy with money you've deposited. A margin account lets you borrow from the broker against your investments. Margin increases both gains and losses, charges interest and can lead to forced selling if prices fall. It's also required for short selling. Most beginners are better off with a cash account.
Is your money safe?
In the US, most brokers are members of the Securities Investor Protection Corporation (SIPC), which protects customers up to $500,000 per account category, including up to $250,000 in cash, if the broker itself fails and assets are missing. SIPC does not protect against investment losses when prices fall. Many large brokers carry additional private insurance. Check that a broker is a SIPC member and registered with FINRA before opening an account.
What to compare
- Fees: commissions on stocks and ETFs (most large brokers charge $0), account fees, and fees on mutual funds and options.
- Minimums: many brokers require nothing to open an account.
- Fractional shares and recurring investments, helpful for small amounts. See how to start investing with little money.
- Account types offered, including IRAs.
- Research tools, app quality and customer service.
- Interest on uninvested cash, which varies a lot between brokers.
Our best stock brokers page compares popular brokers on these points. Whichever you choose, StockEngine's screener, stock pages and portfolio tracker work alongside any broker, for free.
This article is educational and not investment advice.
StockEngine articles are for education only and are not investment advice. Some links may be affiliate links.