What Is a Brokerage Account?

A brokerage account is an account opened at a licensed brokerage firm that can place investment orders for its customers. 

🤔 Understanding Brokerage Accounts 

Typically, “brokerage accounts” refer to taxable accounts, though brokerage firms also offer tax-advantaged accounts. (These include retirement accounts like IRAs and 401(k)s.) Brokerage accounts help everyday investors access the investment market, as they have a direct line to securities exchanges. 

How does a brokerage account work?

Essentially, when you place an order in your brokerage account, the broker conveys your order to the relevant exchange. Once your order is filled, your account reflects that you’ve bought or sold a security at the agreed-upon price. If you invest in securities that offer dividends or voting rights, the broker passes along those benefits, too. 

Types of brokerage accounts

Generally, you can open three kinds of brokerage accounts:

• Individual accounts. Also called a “standard” brokerage account, individual accounts are registered to one person. You can open and fund either an individual cash or margin account. But in both, interest, dividends and capital gains may be taxed. 
• Joint accounts. Joint cash and margin accounts are commonly opened by spouses. As with individual accounts, interest, dividends and capital gains may be taxed. 
• UGMA/UTMA accounts. These custodial accounts are opened by guardians, relatives, or other adults who want to make trades for a minor. The account’s assets are held until the minor reaches the age of majority (variable by state). 
  

What this means for you

Different firms offer different brokerage accounts, services, access to assets, and pricing structures. Broker fees also vary, from no fees at many robo-advisors to high commissions and advisor fees at full-service firms. 

How to open a brokerage account

Nowadays, it’s pretty easy to open a brokerage account online. (Note that you’ll need to be at least 18 years old.) Once you find your preferred firm, you can sign up by providing personal information like your:

• Name 
• Contact data
• Social Security Number
• Bank account information (to transfer funds) 

Then, you’ll have to decide if you want to open a cash or margin account. (Generally, margin accounts are better suited for advanced investors.) After that, all that’s left is to fund your account and start trading. 

At the end of the day, your brokerage account is the best way to access investments like stocks, bonds, ETFs, and mutual funds, among other securities. Many brokers also let you open several types of accounts at once—such as taxable and retirement accounts—so you can take advantage of different perks and tax laws. You can use these accounts to save and invest for various goals, ranging from buying a house to meeting your retirement goals.