What is a brokerage account
Other ways to lower costs for these brokers is by executing orders only a few times a day by aggregating orders from a large number of small investors into one or more block trades which are made at certain specific times during the day. They help lower costs in two ways:. Since investor money is pooled before stocks are bought or sold, it enables investors to contribute small amounts of cash with which fractional shares of specific stocks can be purchased.
This is usually not possible with a regular stockbroker. Many broker-dealers also serve primarily as distributors for mutual fund shares. These broker-dealers may be compensated in numerous ways and, like all broker-dealers in the United States, are subject to compliance with requirements of the US Securities and Exchange Commission and one or more self-regulatory organizations , such as the Financial Industry Regulatory Authority FINRA.
The forms of compensation may be sales loads from investors, or Rule 12b-1 fees or servicing fees paid by the mutual funds. From Wikipedia, the free encyclopedia. Comparison of online brokerages in the United States. Retrieved 10 October British Columbia Securities Commission.
Thomas Smith 6 March Regulation of Investment Companies. The new account form will also ask you to make some important decisions about your account, including how you will pay for your transactions, how any uninvested cash will be managed and who will have control over and access to your account.
While margin loan agreements are typically used to allow investors to buy securities on margin, some firms allow their customers to take out loans for other purposes. In connection with these loans, a firm might ask the customer to sign a margin agreement.
Before you borrow money from your brokerage firm-for any reason-be sure you fully understand the terms, costs and consequences. The new account application may come with other documents-such as a "Customer Agreement," "Terms and Conditions" or the like. Make sure to ask for copies if you do not receive them and download or print out copies of these for your records if you conduct business with your brokerage firm online.
Be sure to take time to review carefully all the information in these documents, whether you are opening your account in person at your broker's office or filling out your forms at home or online. And do not sign them unless you thoroughly understand and agree with the terms and conditions they impose on you. If you haven't already done so, make sure you check out the background of your broker and brokerage firm before you open an account with them.
Although a history free from registration or licensing problems, disciplinary actions or bankruptcies is no guarantee of the same in the future, checking out your broker and firm in advance can help you avoid problems. Also make sure that the phone numbers and addresses that your broker and brokerage firm give you as their contact information are consistent with those listed in Brokercheck. Fraudulent entities and individuals have been known to steal the identities of legitimate brokers and brokerage firms so that they can get at your personal information!
Asking questions will help you to invest wisely and avoid problems. No matter what your level of investing experience, don't be shy or intimidated—it's your money. Here's a list to get you started.
The brokerage firm that you open an account with may not be the one that sends your account statements. You may open an account with an introducing firm , which makes recommendations, takes and executes your orders and has an arrangement with a clearing and carrying firm , which is the one to finalize "settle" or "clear" your trades and hold your funds or securities.
There are also firms that take and execute orders and settle trades. If you work with an introducing firm, you may receive statements from the clearing firm. Find out what type of firm you open an account with and who will send you the account statements. You will receive an account statement at least once every calendar quarter.
Whether the securities are registered in your name or in the name of the brokerage firm can affect how soon you receive your dividends and interest, the ease with which you can sell your securities and the types of communications you receive directly from the issuer of the securities, among other things.
After you open your account, you should monitor its activity regularly. Make sure that you review all of your account statements and trade confirmations for any errors or any transactions that you did not authorize.
If you see any evidence of unauthorized trading or errors, notify your broker, broker's supervisor or brokerage firm's compliance department immediately to further protect your rights. Make sure to take notes of any conversations you have with your firm concerning such disputes, to send in your complaints in writing as well and to keep copies of these notes and all communications related to such disputes for your records.
Ask yourself whether your investments are meeting your expectations and goals and whether your goals have changed. Do your investments still appear to be right for you, and what criteria will you use to decide when to sell?
Information You'll Be Asked to Provide When you decide to open an account, there will be paperwork to complete. In a new account application, along with other information, you'll likely be asked to provide your: Social Security or other tax identification number: Like banks, credit unions and other financial institutions, brokerage firms must report to the Internal Revenue Service the income you earn on your investments.
Driver's license or passport information, or information from other government-issued identification: Employment status, financial information—such as your annual income and net worth—and investment objectives: Collecting this information helps your broker to fulfill regulatory obligations. In addition, the information can help your broker determine suitable investment recommendations for you.
Note that the terms used to describe investment objectives often vary across brokerage firms and new account applications. You might hear terms such as "income," "growth," "conservative," "moderate," "aggressive" and "speculative. Make sure that you describe your financial goals, how much risk you are willing to take with your investments and when you expect to need access to the funds in your account as comprehensively as possible.
Effective February 5, , new account forms may include a section asking you to provide information for a trusted contact person.
Your broker might ask for this information in a conversation or via email as well. You should expect to be asked to provide the name, address and telephone number s for a trusted contact person that your brokerage firm may contact about your account.
While you are not required to provide this information to open an account, it may be a good idea to do so. By choosing to provide this information, you are authorizing the firm to contact such person and disclose information about your account in certain circumstances, including to address possible financial exploitation, and to confirm the specifics of your current contact information, health status, or the identity of any legal guardian, executor, trustee or holder of a power of attorney.
You also will receive a written disclosure from the firm that lays out these details. Decisions You'll Be Asked to Make The new account form will also ask you to make some important decisions about your account, including how you will pay for your transactions, how any uninvested cash will be managed and who will have control over and access to your account.
Do you want a cash account or margin loan account? Most brokerage firms offer at least two types of accounts—a cash account and a margin loan account customarily known as a "margin account".
In a cash account, you must pay for your securities in full at the time of purchase. In a margin loan account, although you must eventually pay for your securities in full, your broker can lend you funds at the time of purchase, with the securities in your portfolio serving as collateral for the loan.
This is called buying securities "on margin. There are risks that arise from purchasing securities on margin that do not come with most other types of loans. For example if the value of your securities declines significantly, you may be subject to a "margin call.