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Brokerage account

A brokerage account is an account at a stockbroker. The account is maintained for the purpose of investing.

Expanded Definition

Most brokerage accounts allow investment in stocks, exchange traded funds (ETFs), bonds, and mutual funds. Some allow investing in options and futures contracts. A margin account permits investing on the margin, i.e., with borrowed cash or stock (short selling). Most brokerage accounts provide money markets for idle cash. Some allow check writing. Some permit access by credit card or by ATM. Most accept orders by telephone or via the internet. Most issue monthly statements of the account.

Most brokerage firms can act as custodian for your IRA, Roth IRA or a variety of other qualified retirement accounts. These accounts are kept separate, but often you can obtain combined monthly statements and sometimes composited account allocation information, etc. Many offer estate planning, financial planning, and retirement planning services. Some offer trust services and charitable giving services. Some offer 529 plans.

The traditional broker is a full service broker with an office on main street in your community. You work with a personal broker who knows your account and investing style and offers you advice and appropriate investment opportunities. He/she also is your contact for an array of specialized products and services offered by the firm. Brokers of this style are known as "wire houses." In days gone by, they would telegraph your order to a stock exchange for execution.

Under the best of circumstances, a personal broker with a full service brokerage can be a beneficial relationship. However, it is a high cost model. Often commission rates are high and there is a tendency to recommend investments like load funds or annuities that pay high commissions.

Discount brokers usually offer the same products and services, but with less personal attention. They are frequently accessed by the internet or by 800 telephone numbers. You are more on your own to identify investment opportunities of interest and appropriate for your needs, but fees charged for these services are often much lower than at a full service broker.

Some brokers own a seat on the New York Stock Exchange or other exchanges. This gives them direct access to the exchange. Other brokers process your order through other firms.

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