What is a brokerage account, you may ask. Well, a brokerage account refers to a formal arrangement between an individual investor or firm and a licensed brokerage firm which allows the investor to deposit funds with the firm and place investment orders (buy and sell orders) through the brokerage firm. The firm then carries out the transactions on the investor(s)’ behalf. We are aware on what to consider in choosing a broker and its only fare we to it up with the types of Brokerage Accounts to open with those brokers.
We will discuss two main types brokerage accounts that you can consider opening as an investor. Check out the other types of brokerage accounts to be well equiped.
Cash account
A brokerage account in which all transactions are made on a strictly cash basis. In other words, a cash account refers to a regular brokerage account where the customer or the investor is required by law to pay for all securities’ purchases in full within two days of when a purchase is made.
Read Also: Introduction To Buying And Selling Financial Securities
Margin account
This is a brokerage account in which, subject to limits, securities can be bought and sold on credit. To expound further, a margin account is one offered by brokerages which permit investors to borrow money for use in buying securities. An investor may put down a given percentage, say 60% of the total value of a purchase and borrow the remaining amount from the broker. The broker then charges the investor interest for the right to borrow money using the securities as collateral. Take a look at the margin accounts calculations to better understand these type of account.
Given the information above on the Types of Brokerage Accounts together with the fact that you a rational investor that you are, I believe you are well placed to make the best possible account depending on your financial position.
