A Beginner’s Guide to Brokerage Accounts

Brokerage accounts - A Beginner’s Guide to Brokerage Accounts

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Many new and experienced investors open a brokerage account to save for retirement, a down payment on a home and other big life events. Brokerage accounts allow you to buy a wide range of investments, including stocks and bonds, and offer both hands-on and hands-off investing options. Use this guide to learn how brokerage accounts work and how to best manage an account. 

What Is a Brokerage Account?

A brokerage account is an investment account that allows you to buy and sell various types of investments, such as stocks. You can open a brokerage account via brokerage firms like Fidelity Investments, Charles Schwab and Vanguard. 

Brokerage accounts are less restrictive than other account options, like individual retirement accounts (IRAs). There is no contribution limit and you can access your money at any time for any reason. However, unlike IRAs, brokerage accounts don’t come with tax advantages. You fund taxable brokerage accounts with after-tax dollars and also pay taxes on your earnings.

Investment options for brokerage accounts include:

  • Stocks
  • Bonds
  • Mutual funds
  • Exchange-traded funds (ETFs)

You can open a cash or margin account. The difference between the two is how and when you pay for your investments, according to the Financial Industry Regulatory Authority (FINRA). 

With a cash account, you have enough money in your brokerage account to pay for investments in full. With a margin account, you only pay a portion of the investment cost and borrow the rest from the brokerage firm. 

Cash accountPay 100% of the investment cost upfrontBest for: All types of investors
Margin accountPay a portion of your investment with your own funds, and borrow the rest from the brokerage firmBest for: Experienced investors

How Do Brokerage Accounts Work? 

Brokerage accounts allow you to trade investments, which you can do on your own or with the help of a financial advisor or digital platform like a robo-advisor. 

There are generally two different types of brokerage account providers: online brokerage accounts and managed brokerage accounts. 

Online brokerage accountMost online brokerage accounts are self-directed, meaning you manage your investments. Because there is no advisor to pay, this option is less expensive. Best for: Affordability and flexibility 
Managed brokerage account This type of account gives you the help of an investment advisor. There are additional fees involved with managed brokerage accounts. Best for: Hands-off investing  

Are Brokerage Accounts Safe?

It’s important to research your brokerage provider before trusting it with your money. Verify the brokerage firm’s credibility using the following tools.

  • FINRA has a BrokerCheck tool that shows you employment history, certifications, licenses and any violations for brokers and investment advisors. 
  • Make sure the brokerage firm is a member of the Securities Investor Protection Corporation (SIPC). The SIPC protects investors for up to $500,000 (including $250,000 for cash) if a firm goes bankrupt. This is similar to the FDIC’s insurance on most bank deposits. 

Brokerage Account Tips

When using a brokerage account, it’s important to determine whether you may be paying fees and to maintain a well-balanced portfolio. The following tips can help.

1. Determine the Brokerage Fees

Fees vary depending on what type of brokerage account you open and what you choose to invest in.

No-fee trading has become the norm for online brokerage accounts, which means you can generally avoid paying fees for buying and selling stocks or other assets. However, some investments do come with other types of fees, like the expense ratio you may have to pay for investing in a fund. (The average expense ratio for U.S. open-end mutual funds and ETFs was 0.37% in 2022, according to research firm Morningstar). Brokerages will also charge more for premium services, like extra research and market data or professional advice. 

If you choose a managed brokerage account, you can expect to pay more for the extra service. The fee for a full-service broker can be between 0.20% and 1.5%, according to Experian. Robo-advisors are a cheaper option if you want a less expensive hands-off approach. They typically charge around 0.25% to 0.5% of your assets (popular robo Wealthfront, for example, charges an annual 0.25%). 

Make sure you understand all possible fees and compare costs from several brokerage firms before opening an account. 

Potential brokerage fees

  • Commissions 
  • Loads
  • Account maintenance fees
  • Inactivity fees
  • Account closing fee
  • Margin interest
  • Wire or transfer fees 

Source: U.S. Securities and Exchange Commission 

2. Diversify Your Investments

Diversification is an investing strategy that entails buying different types of investments to reduce your overall portfolio risk. 

For example, if your portfolio includes stocks, you may want to include other assets like bonds, as well as buy stocks of various sectors and company sizes. That way, if one asset class performs poorly, the others can hold steady and potentially even rise in value. 

3. Rebalance Your Portfolio 

No matter what type of brokerage account you have, self-directed or broker-managed, it’s important for either you or the broker to rebalance your account regularly, such as once a year. Rebalancing involves buying and selling investments so that your portfolio’s allocations are in line with your goals, time horizon and risk tolerance. 

For example, if your portfolio is made up of 60% stocks and 40% bonds but market volatility has grown the stock aspect of your portfolio to 70%, you may want to sell some stocks to return the portfolio to the original asset allocation. 

How to Open a Brokerage Account

Opening a brokerage account can be done online or in person. 

You’ll need to provide information to verify your identity and answer some questions about your financial situation on your brokerage account application, which will likely include:

  • Social Security number
  • Address
  • Email
  • Drivers License
  • Net worth
  • Investment objectives and risk tolerance
  • Liquidity needs 

Once the brokerage firm has your information, you’ll need to decide if you want a cash or margin account. 

Did You Know? 
Some brokerage firms make margin accounts the default option. Confirm which type of account you’re getting before signing the account application. 
Source:  U.S. Securities and Exchange Commission 

After all the necessary documents are signed, you can start managing the account yourself or have an investment advisor do so for you. 


TIAA. (2024). Brokerage. Retrieved from https://www.tiaa.org/public/invest/financial-products/brokerage-accounts

Luthi, B. (2023, September 13). How Much Does a Brokerage Account Cost? Retrieved from https://w


U.S. Securities and Exchange Commission. (2021, June 10). Investor Bulletin: How to Open a Brokerage Account. Retrieved from https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_openbrokerageaccount

FINRA. (n.d.). Brokerage Accounts. Retrieved from https://www.finra.org/investors/investing/investment-accounts/brokerage-accounts