Understanding Brokerage Accounts

There are several types of brokerage accounts and brokerage firms, giving investors the chance to choose the model that best suits their financial needs.

Some full-service brokers provide extensive investment advice and other services but charge high fees. On the other end of the compensation spectrum, most online brokers provide a secure interface through which relatively that offer financial planning and investment services driven by algorithms, not people. Typically, they are low cost and require low account opening minimum amounts.

Brokerage accounts may differ in terms of order execution speed, analytical tools, the scope of tradable assets, and the extent to which investors can trade on margin.

For any type of brokerage, the most basic account is a cash account. This allows you to buy investments using the money deposited in the account. However, you can't sell short, buy on margin, trade options, or take advantage of other more sophisticated products. To do so, you need a margin account.

With a margin account, you can borrow money from your brokerage for additional purchases. The securities in your account serve as collateral. The brokerage charges regular maintenance interest on this loan, and it may request additional money from you immediately if the securities in the account lose too much value. This request is known as a margin call. If you can't meet a margin call, your broker may sell your securities.