Types of Brokerage Accounts for New Investors
As people begin their trading journey and contemplate developing an
investment portfolio of their own, whether it is by buying and selling
shares, bonds, mutual funds, futures, or trade currencies they will come
across the term broker and brokerage account. Before traders are
allowed to start trading they will be required to approach brokers with
whom they can open a brokerage account through which they will be able
to buy and sell instruments of their preference.
Brokers buy and sell shares, bonds etc on behalf of their trader clients against a fee or commission. The fee or commission can be as low as $5 or ten dollars, or can even be more and go up to a few hundred US dollars, assuming we are talking about opening account in the United States of America.
Brokers and brokerage accounts are mainly of two types, traditional broker account also called full service brokerage account; and discount broker accounts.
Brokerage Account Fee Structure or Format:
Fee structure has a lot to do with which type of broker is a trader contemplating to go with. Traditional brokerage account maintenance fee is higher than discount brokerage account fee.
Traditional or Full Service Brokerage Account:
Traditional broker accounts operate on the lines of professional brokers where brokers act like wealth managers who offer trading related advice regarding trading in various market conditions; recommending specific shares to buy and sell; discussing breaking news; and keeping their clients abreast of other development and profit opportunities from time to time. These traditional brokers may also go a step further and provide multiple services to their clients and their fee is accordingly decided. They may offer various services in various packages; on the other hand they may also offer freedom to their clients to choose services they like and pay for them.
Discounted Broker:
Discounted brokerage accounts are those where brokers do not actively participate with traders when it comes to making trading decisions regarding where, & how much to invest. When traders open discounted brokerage account they have to make their own trading decisions and have to take care of their capital on their own; here they are charged a much lower fee as compared to traditional account holders.
Brokerage Firms Offering Combination Package:
There are some firms however that offer both types of services to the clients depending on their individual requirements. Formalities to open any type of account are straight and simple. If you will call a brokerage firm it will send its representative across to you with form that you have to fill and sign and give a check of the required amount to the person and within three to four days your account will be opened. Or you can also do the same online. Go to broker’s website, have a detailed look at their services, fee format; other terms and conditions and then take a printout of the form available on the site. Fill it up manually, and post it along with a check and you will hear from them soon informing you of receipt of the same and account opening confirmation.
Advice for New Investor Regarding Choice of Brokerage Account
If you are a new investor you should opt for full service account or traditional brokerage account because such an account offers you personal one-to-one services from a professional broker who will not only offer you advice but will also help you to learn skills of trading like reading and analysing market; preparing, reading & analysing reports; impacts of breaking news on market; and so on.
Discount brokerage accounts are geared towards catering to clients who are self driven and experienced. Where traders will be taking all the decisions and brokers will be merely there facilitating execution of such orders. By way of providing an additional service some discounted brokerage account firms have cropped up which are offering in-depth researches to its clients which some clients claim are as good as traditional broker firms provide their clients with.
Once your account has opened, it will be as easy for you to buy stocks as it will be to buy bonds. Start slowly and be on your way to building wealth and this brings ups to first part of brokerage account.
Types of Accounts:
The next and concluding part of this article will highlight different types of accounts that brokerage accounts offer to traders. They are (i) cash account, (ii) margin account and (iii) Discretionary Accounts.
(i) Cash Account:
These are simplest and this is where every new investor or beginners starts. As a trader when you open an account with a discount broker; the broker will ask you to deposit a pre- decided sum of money into the account before you are allowed to tart trading. This is a safety deposit against probable loss arising out of trades executed by you. Same cash account when you are with traditional broker you will be granted three days’ grace period known as settlement date to deposit the money into your account. Some brokers also allow trader to pay via his/her credit card but this risk a trader should NEVER take. Irrespective of your experience; mastery over strategies, whatever, don’t ever bring credit card in the picture while trading. It will be the worst thing you would do in your entire trading tenure/career.
(ii) Margin Account:
Margin accounts is an account enables trader to borrow money to trade stocks, buy bonds etc albeit in relatively favourable conditions. Your broker can lend you up to half the amount of purchases you make buying stocks etc. If done wisely margin account can make your money grow like nothing can and that is the reason it is also sometimes called by the name of leverage account.
The risk arises when a trader operating on margin account finds the value of his stocks falling instead of rising; in such a situation depending on broker’s individual policy he will make a margin call announcement for his trader. On receiving such intimation trader has two options before himself, he either deposits enough money to cover the borrowings or sell off existing holdings in part or in full to do the same. There are some brokerage accounts that do not offer the facility of depositing cash in the broker’s account; instead they go ahead en-cash the holdings to the extent of clearing the loan taken.
(iii) Discretionary Accounts
When a trader holds this kind of account it gives its brokers control over buying and selling decisions so much so that the broker is free to make sales and purchases of stocks without even informing the account holder. There are some exceptional circumstances which demand for such an account; however generally it not advisable for any broker to allow such a control over his account to someone else especially a broker who is familiar with all possible loopholes of trading business and can take a trader for a ride within no time. Unless you know a broker you can absolutely trust, don’t make a mistake of opening a Discretionary Account.
This brings us to the end of this topic about types of brokers and types of accounts we can open with them. I do hope it helps you opening an account with more clarity and understanding.
Good Luck!
Brokers buy and sell shares, bonds etc on behalf of their trader clients against a fee or commission. The fee or commission can be as low as $5 or ten dollars, or can even be more and go up to a few hundred US dollars, assuming we are talking about opening account in the United States of America.
Brokers and brokerage accounts are mainly of two types, traditional broker account also called full service brokerage account; and discount broker accounts.
Brokerage Account Fee Structure or Format:
Fee structure has a lot to do with which type of broker is a trader contemplating to go with. Traditional brokerage account maintenance fee is higher than discount brokerage account fee.
Traditional or Full Service Brokerage Account:
Traditional broker accounts operate on the lines of professional brokers where brokers act like wealth managers who offer trading related advice regarding trading in various market conditions; recommending specific shares to buy and sell; discussing breaking news; and keeping their clients abreast of other development and profit opportunities from time to time. These traditional brokers may also go a step further and provide multiple services to their clients and their fee is accordingly decided. They may offer various services in various packages; on the other hand they may also offer freedom to their clients to choose services they like and pay for them.
Discounted Broker:
Discounted brokerage accounts are those where brokers do not actively participate with traders when it comes to making trading decisions regarding where, & how much to invest. When traders open discounted brokerage account they have to make their own trading decisions and have to take care of their capital on their own; here they are charged a much lower fee as compared to traditional account holders.
Brokerage Firms Offering Combination Package:
There are some firms however that offer both types of services to the clients depending on their individual requirements. Formalities to open any type of account are straight and simple. If you will call a brokerage firm it will send its representative across to you with form that you have to fill and sign and give a check of the required amount to the person and within three to four days your account will be opened. Or you can also do the same online. Go to broker’s website, have a detailed look at their services, fee format; other terms and conditions and then take a printout of the form available on the site. Fill it up manually, and post it along with a check and you will hear from them soon informing you of receipt of the same and account opening confirmation.
Advice for New Investor Regarding Choice of Brokerage Account
If you are a new investor you should opt for full service account or traditional brokerage account because such an account offers you personal one-to-one services from a professional broker who will not only offer you advice but will also help you to learn skills of trading like reading and analysing market; preparing, reading & analysing reports; impacts of breaking news on market; and so on.
Discount brokerage accounts are geared towards catering to clients who are self driven and experienced. Where traders will be taking all the decisions and brokers will be merely there facilitating execution of such orders. By way of providing an additional service some discounted brokerage account firms have cropped up which are offering in-depth researches to its clients which some clients claim are as good as traditional broker firms provide their clients with.
Once your account has opened, it will be as easy for you to buy stocks as it will be to buy bonds. Start slowly and be on your way to building wealth and this brings ups to first part of brokerage account.
Types of Accounts:
The next and concluding part of this article will highlight different types of accounts that brokerage accounts offer to traders. They are (i) cash account, (ii) margin account and (iii) Discretionary Accounts.
(i) Cash Account:
These are simplest and this is where every new investor or beginners starts. As a trader when you open an account with a discount broker; the broker will ask you to deposit a pre- decided sum of money into the account before you are allowed to tart trading. This is a safety deposit against probable loss arising out of trades executed by you. Same cash account when you are with traditional broker you will be granted three days’ grace period known as settlement date to deposit the money into your account. Some brokers also allow trader to pay via his/her credit card but this risk a trader should NEVER take. Irrespective of your experience; mastery over strategies, whatever, don’t ever bring credit card in the picture while trading. It will be the worst thing you would do in your entire trading tenure/career.
(ii) Margin Account:
Margin accounts is an account enables trader to borrow money to trade stocks, buy bonds etc albeit in relatively favourable conditions. Your broker can lend you up to half the amount of purchases you make buying stocks etc. If done wisely margin account can make your money grow like nothing can and that is the reason it is also sometimes called by the name of leverage account.
The risk arises when a trader operating on margin account finds the value of his stocks falling instead of rising; in such a situation depending on broker’s individual policy he will make a margin call announcement for his trader. On receiving such intimation trader has two options before himself, he either deposits enough money to cover the borrowings or sell off existing holdings in part or in full to do the same. There are some brokerage accounts that do not offer the facility of depositing cash in the broker’s account; instead they go ahead en-cash the holdings to the extent of clearing the loan taken.
(iii) Discretionary Accounts
When a trader holds this kind of account it gives its brokers control over buying and selling decisions so much so that the broker is free to make sales and purchases of stocks without even informing the account holder. There are some exceptional circumstances which demand for such an account; however generally it not advisable for any broker to allow such a control over his account to someone else especially a broker who is familiar with all possible loopholes of trading business and can take a trader for a ride within no time. Unless you know a broker you can absolutely trust, don’t make a mistake of opening a Discretionary Account.
This brings us to the end of this topic about types of brokers and types of accounts we can open with them. I do hope it helps you opening an account with more clarity and understanding.
Good Luck!
Comments