Glossary
Brokerage account
You cannot buy a share on an exchange yourself. You go through a broker, and the brokerage account is where your cash, your shares and your trades live.
A brokerage account is an account at a broker-dealer that you use to buy, sell and hold securities such as stocks. It can be a cash account, where you pay in full, or a margin account, where you can borrow from the firm.
Quick answer
A brokerage account is the account a broker-dealer holds for you to buy, sell and hold securities. In a cash account you pay in full; in a margin account you can borrow from the firm [2]. SIPC may protect up to $500,000, including $250,000 cash, if the firm fails [6].
Key points
On this page
What can you do with a brokerage account?#
With a brokerage account you buy and sell stocks, funds and other securities through a broker-dealer. You place orders, the firm executes them, and many firms hold your shares in "street name" unless you instruct otherwise [1]. If you are new to this, our step-by-step guide on how to buy your first stock walks through it.
The SEC's bulletin on opening an account notes that brokerage accounts differ from investment advisory accounts, which generally are governed by different rules [2]. In a brokerage account you typically pay a commission or markup when you buy or sell a security, according to FINRA [3].
| Account type | How you pay for securities | Main extra risk |
|---|---|---|
| Cash account | You pay the full amount | None from borrowing |
| Margin account | You can borrow from the firm | You can lose more than you invested |
Account types from the SEC bulletin on opening an account [2]; margin risk from the SEC bulletin on margin [4].
A margin account is the type of brokerage account in which the firm lends you cash, using the account as collateral [5]. Our guide to the pattern day trader rule and margin explains the rules and risks in detail.
What will a broker ask when you open an account?#
Expect personal and financial questions. The SEC lists your name, Social Security or taxpayer identification number, address, annual income, net worth, investment objectives and risk tolerance, and investment experience [2]. Brokers need this information to comply with laws and other regulations [2]. Firms may also ask for a trusted contact [2].
Ask about fees too. The SEC bulletin points to commissions, account maintenance fees and inactivity fees [2]. Our guide to brokerage fees and costs covers the less visible ones. Before you open the account, read the firm's relationship summary (Form CRS) and check the broker's background and disciplinary history [2].
Is the money in a brokerage account protected?#
Partly. SIPC protects against the loss of cash and securities held at a financially troubled SIPC-member brokerage firm [6]. It does not protect against a decline in the value of your securities [6].
Read more in SIPC protection explained.
Frequently asked questions#
Is a brokerage account the same as a bank account?
No. SIPC protection is not the same as FDIC protection for cash at a bank, because SIPC does not protect the value of any security [6].
Should I open a cash or a margin account?
How do I check a broker before opening an account?
The SEC says to read the firm's Form CRS and check the broker's background and disciplinary history [2].
The bottom line#
A brokerage account is where your stock investing actually happens. Choose between cash and margin with care, read the firm's Form CRS, check its record and fees, and remember that SIPC covers a failed firm, not falling prices. Then read our risk disclosure.
Sources
Education only. This page is not investment, tax or legal advice. Stocks can lose value. See our risk disclosure.
