Brokerage Accounts

Why this matters

To own stocks, bonds, or funds, you almost always need an account with a firm that can buy and sell them for you. It's the first practical step in investing, and the choice of firm and account type affects your costs, your options, and your risks for years.

What a brokerage account is

A brokerage account is an account at a brokerage firm that holds your investments and any cash waiting to be invested. You deposit money, place orders through the firm, and the investments you buy are held in the account in your name. As Exchanges, Buyers, and Sellers covered, the firm acts as your broker, sending your orders to the market.

Brokerage firms come in a few broad styles:

• Self-directed firms, mostly online or app-based, where you make your own decisions and place your own trades.
• Full-service firms, where a representative can make recommendations and manage investments for you, usually for higher fees.
• Automated services, sometimes called robo-advisors, which build and maintain a portfolio for you based on answers to a questionnaire.

Many firms offer more than one of these. Hyperion Entities doesn't recommend specific firms, but this lesson covers what to compare.

Cash accounts and margin accounts

The most important choice when opening an account is whether it's a cash account or a margin account.¹

• In a cash account, you pay for every purchase in full with money you've deposited. The most you can lose is what you put in.
• A margin account also lets you borrow money from the firm to buy securities, using your investments as collateral. Borrowing magnifies both gains and losses, and you pay interest on the loan.

Many firms offer margin by default or encourage it. For someone learning to invest, a cash account keeps things simpler and limits the damage a mistake can do. Margin gets its own optional lesson at the end of this module: Margin and Short Selling.

What to compare when choosing a firm

	Firm A	Firm B
Commission on stock and ETF trades	$0	$0
Yearly account fee	$0	$50
Fee to transfer your account out	$75	$0
Fractional shares	Yes	No
Retirement accounts offered	Yes	Yes
Default account type	Margin	Cash

Neither firm is simply "better." Firm A is cheaper to hold an account with but costs more to leave, and it opens accounts with margin unless you choose otherwise. Firm B charges a yearly fee but is simpler. The right choice depends on what matters to you. The point is to compare the full list, not just the headline commission.

A practical checklist:

1. Registration. Look the firm up on FINRA's BrokerCheck before sending any money.² Who Regulates the Markets explains why.
2. Protection. Check whether the firm is a SIPC member, which protects customers if the firm itself fails, up to set limits. SIPC doesn't protect against investment losses.³ Keeping Your Account Safe covers this in more detail.
3. Costs. Commissions, account fees, transfer fees, and the costs of any funds you buy. Settlement, Fees, and Fractional Shares goes through them.
4. What you can buy. Stocks, ETFs, mutual funds, bonds, and whether fractional shares are available.
5. Account types. Whether the firm offers the accounts you'll want, including retirement accounts, covered in the next lesson.
6. Service and security. How you reach a person when something goes wrong, and what login protections the firm offers.

Key takeaways

• A brokerage account holds your investments and cash, and the firm places your trades.
• A cash account uses only your own money. A margin account lets you borrow, which magnifies both gains and losses.
• Check registration on BrokerCheck and SIPC membership before opening an account.
• Compare the full set of costs and features, not just the commission.

Check your understanding

Alex is opening their first brokerage account and the app defaults to a margin account. Based on this lesson, what's the main thing to understand before accepting?

1. Margin accounts pay higher interest on cash you leave uninvested.
2. Margin allows borrowing, which magnifies losses as well as gains.
3. Margin accounts can't hold ETFs, only individual stocks.

What's next

A brokerage account can also be a retirement account, with very different tax rules. The next lesson, Taxable vs. Tax-Advantaged Accounts, explains the difference.