What is a brokerage account?

In a common definition, a broker is a "middleman" that matches buyers and sellers, in exchange for a commission or some other type of payment. For example, if you want to sell your house, you can hire a real estate agent as a broker, rather than trying to find a buyer on your own. After the house is sold, the broker/agent receives either a fixed fee or a percentage of the sales price.

The same thing happens when you invest or trade on financial markets. The main task of a broker is to execute your transactions. Brokers buy and sell securities on your behalf, and may collect a small payment of some kind in return. Stockbrokers have access to the biggest financial markets such as the NASDAQ or the New York Stock Exchange. As a retail client, you can't have such direct access, and an intermediary is necessary between you and the stock exchange.

Traditionally, brokers used to be actual people working on busy trading floors. They would take your orders by phone, frantically yelling 'buy' or 'sell' while looking at big TV screens flashing numbers and charts. Nowadays, trading floors have fallen silent, and brokers have been mostly replaced by online platforms and smartphone apps.

If you want to invest in stocks or other financial instruments today, the easiest and most common way to do it is through an online broker. Other options include choosing a robo-advisor or hiring a private financial advisor. Below is a high-level comparison of these solutions:

Online brokerages require the most engagement and activity from your side, as you need to do everything on your own, from coming up with a trading idea up to actual order execution. However, this is also the cheapest option and the one that gives you the most freedom.

By contrast, robo-advisors use a proprietary algorithm to invest in assets (usually ETFs) based on your risk preferences and investment goals, with little activity needed on your end. Meanwhile, private financial advisors are usually pricier but may be ideal if you need more help and prefer to talk with an investment professional regularly.

A broker account - also referred to as an investment account or a stocks account - is an account you open at an online brokerage. It allows you to trade financial products using the broker's own trading platform or third-party platforms.

If you're looking for a good brokerage account definition, think of it as a kind of bank account - the big difference is that in addition to cash, you can also hold stocks and other financial instruments on your broker account. You are the owner of all the cash and securities you hold; the broker merely acts as a custodian of your assets.

Are you ready to make your move? Check out our My First Stock Trade Quest, where we guide you through, step by step, the process of opening your first online stock brokerage account and buying your first stock.

It's simple - you deposit money to your brokerage account; then you can use this money to buy stocks or other securities such as bonds, mutual funds or ETFs. Conversely, if you have just sold some securities or otherwise have excess cash on your broker account, you can withdraw it to your bank account.

In most cases, you can deposit money to your brokerage account via a simple transfer from your bank account; usually at little to no cost. You can withdraw money from your brokerage account the same way. Many brokers, especially outside the US, allow deposits and withdrawals using credit/debit cards. Some brokers also accept deposits and withdrawals via electronic wallets such as PayPal.

What can you do with a broker account?

In addition to holding your cash and securities and allowing you to trade, broker accounts can give you access to additional features. These can include research tools such as charts, news feeds, fundamental data on stocks, or trading recommendations by experts. Many broker accounts also come with educational material such as articles or videos on the basics of investing and trading.

Some brokers also offer demo accounts, also known as paper trading accounts. These are basically virtual accounts where you can play around and try out the features of the trading platform and have a feel for trading, without committing and risking actual money.

Do you already have a broker account up and running? Read our comprehensive summary on how to buy shares online.

Can anybody open a brokerage account?

Generally, you need to be at least 18 years old to open a brokerage account. Otherwise, there are usually no restrictions. It’s a simple process that involves filling out an online application form, taking about 15 minutes; then waiting a day or two for the broker to approve and activate your account.

Is it a good idea to have a brokerage account?

If you want to save for retirement or another long-term financial goal such as buying a house, a brokerage account is often your best option. It allows you to buy a wide range of securities and manage them in line with your financial goals, investment timeframe and risk tolerance.

What is the downside to a brokerage account?

While brokerage accounts are great for trading stocks and other securities, they’re not always the best place to park your uninvested cash; many banks offer better interest rates for that. Also, banks with brick-and-mortar offices often provide better and more responsive customer service.

What is an individual broker account?

An individual broker account is a broker account where you are the sole owner. Other types include joint broker accounts (owned by two or more persons) or corporate accounts (owned by businesses).