Money Smart: What Is a Brokerage Account?

Many individuals aren’t sure how to start investing in stocks, bonds, and other securities. A brokerage account is one way to start building a diversified portfolio.

Print
https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Investing: What is a brokerage account?
3 min read

Key Takeaways

  • Use a brokerage account to invest in stocks and other securities to pursue your long-term goals
  • Decide which type of brokerage account you want: cash or margin
  • Compare investment choices, fees, and services when choosing a brokerage firm [Compare investment choices, fees, and services when choosing a brokerage firm]

Traditional savings accounts are a good way to help build your emergency fund and to have cash on hand for short-term goals. But if you’re investing for retirement, your children’s education, or even a down payment on a house, you’ll likely want to invest in stocks, bonds, and other securities to help maximize the potential for growth. And to do that, you generally need to have a brokerage account.       

Brokerage Account Basics

A brokerage account is an investment account that you open either as an online trading account or through a full-service brokerage firm to buy and sell securities. The most common type is a cash brokerage account, where you deposit a sum of money that’s used to purchase investments for your portfolio. Let’s say you want to buy 100 shares of ABC stock at $20 a share. Before placing the trade, you would put at least $2,000 in your brokerage account to cover the cost of the stock and any related fees. Once executed, you get a confirmation statement showing the details of the transaction.  

Keep in mind the amount you buy can’t exceed your account balance. So if you don’t have enough funds for the security you want, you’ll have to deposit more money before proceeding. Some people link their savings or checking account to their brokerage account to make it easier to transfer funds as needed.

You could also apply for margin trading privileges, which involves leveraging your account. But given the increased risks, this strategy is usually best-suited for investors who have an aggressive investment style and can handle the potential consequences.     

One Location for Managing Your Portfolio   

You don’t necessarily have to use an investment account to buy government bonds, mutual funds, exchange-traded funds, and in some cases stocks. There are ways to buy these investments directly. But if you do, you’ll likely have to spend more time gathering information from multiple sources to monitor your portfolio and evaluate progress toward your financial goals.

With a brokerage account, the investments in your portfolio are consolidated in one spot, which may make it easier to see how you’re doing. You also typically have a single point of contact for questions and access to a wide range of planning tools and investment research—a level of support you might not get by going direct.

Like the sound of up to $600 cash? Open and fund a new account.

Choosing Your Brokerage Service

If you decide to open a brokerage account, you’ll need to figure out which firm to use. There are hundreds to choose from, all with different fees and services, so it’s important to do your homework. Here are few questions to help you identify which securities firm may be right for you.

  • What types of securities do they support? Most brokerage firms support basic investment choices like stocks, bonds, mutual funds, and ETFs. But not all of them handle options contracts and other more complex products. Any firms that don’t offer the investments you want should be crossed off the list. 
  • How much do they charge per trade? Generally, you’re assessed a commission (fee) each time you buy or sell a security in your brokerage account. This fee is used to cover the cost of processing your trade and can vary widely across brokerage firms. While some of these dollar amounts may seem negligible, they can add up quickly if you trade frequently. It’s worth noting that some brokerage firms, including TD Ameritrade, offer commission-free ETFs and no-transaction-fee mutual funds*. It’s something to keep in mind if you plan on trading these products in your brokerage account.
  • Are there other expenses? In addition to commissions, you may have to pay an annual fee or other extra charges for investment research and tools. There could also be an inactive account fee. As part of your review, you’ll need to decide if these added expenses are reasonable for the services being provided. For example, if you don’t plan to trade very often, you probably don’t want to select a brokerage firm with an inactivity fee.    
  • What is the investment minimum? Like fees, the minimum amount to open a brokerage account can vary broadly. Look for a minimum that fits your budget. 
  • What services does the firm offer? Do you want to have face-to-face meetings with an advisor? Or do everything yourself online? Or perhaps you want a combination? Your investment preferences may influence which brokerage service you choose. You might also want to poke around the firms’ websites to see how easy they are to navigate and what tools and resources are available to help you manage your portfolio. 

Once you’ve made your decision, you’ll want to reach out to the firm to find out the steps for opening your account and sending your initial deposit. Depending on the firm, you may be able to complete and submit your application online.

Brokerage accounts provide a convenient way for investors of all types, new or seasoned, to invest in stocks and other securities to pursue their long-term goals. To learn more about investment fundamentals and different investment strategies, consider attending a TD Ameritrade webcast or in-person event

Featured Video

Investing Basics: Stocks
Call Us
800-454-9272

*Carefully consider the investment objectives, risks, charges and expenses before investing. A prospectus, obtained by calling 800-669-3900, contains this and other important information about an investment company. Read carefully before investing.

ETFs are subject to risk similar to those of their underlying securities, including, but not limited to, market, investment, sector, or industry risks, and those regarding short-selling and margin account maintenance. Some ETFs may involve international risk, currency risk, commodity risk, leverage risk, credit risk, and interest rate risk.  Performance may be affected by risks associated with nondiversification, including investments in specific countries or sectors. Additional risks may also include, but are * limited to, investments in foreign securities, especially emerging markets, real estate investment trusts (REITs), fixed income, small-capitalization securities, and commodities. Each individual investor should consider these risks carefully before investing in a particular security or strategy. Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the ETF. Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV).

Information provided by TD Ameritrade, including without limitation that related to the ETF Market Center and commission-free ETFs, is for general educational and informational purposes only and should not be considered a recommendation or investment advice. 

Particular commission-free ETFs may not be appropriate investments for all investors, and there may be other ETFs or investment options available at TD Ameritrade that are more suitable. 

ETFs purchased commission-free that are available on the TD Ameritrade ETF Market Center are available generally without commissions when placed online in a TD Ameritrade account. Other fees may apply for trade orders placed through a broker or by automated phone. 

TD Ameritrade receives remuneration from ETFs that participate in the commission-free ETF program for shareholder, administrative and/or other services.

No Margin for 30 Days.  Certain ETFs purchased commission free that are available on the TD Ameritrade ETF Market Center will not be immediately marginable at TD Ameritrade through the first 30 days from settlement. For the purposes of calculation the day of settlement is considered Day 1.

No-Transaction-Fee (NTF) mutual funds are no-load mutual funds for which TD Ameritrade does not charge a transaction fee. TD Ameritrade receives remuneration from mutual fund companies, including those participating in its no-load, no-transaction-fee program, for record-keeping, shareholder services, and other administrative and distribution services. The amount of TD Ameritrade’s remuneration for these services is based in part on the amount of investments in such funds by TD Ameritrade clients. Almost all funds held 180 days or less [90 days or less for SDPS, Institutional] will be subject to a short-term redemption fee of $49.99. This fee is in addition to any applicable transaction fees or fees described in the fund’s prospectus.

No-Transaction-Fee (NTF) mutual funds are no-load mutual funds for which TD Ameritrade does not charge a transaction fee. Mutual funds have other fees, and expenses that apply to a continued investment in the fund and are described in the prospectus.

adChoicesAdChoices

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2018 TD Ameritrade.

Scroll to Top