A brokerage account holds cash and securities and records trades. Compare cash and margin accounts, control, fees, cash sweeps, protection, and risks.
A brokerage account is an account at a broker-dealer through which a customer can hold cash and securities, submit investment orders, receive transaction records, and use services permitted by the account agreement. The account is a legal and operational relationship, not an investment by itself: its risk depends on the assets held, borrowing, trading authority, cash arrangement, fees, and firm structure.
In the United States, the first major account distinction is usually cash versus margin. Other labels, such as individual, joint, retirement, custodial, trust, entity, self-directed, discretionary, or advisory, answer different questions about ownership, tax status, decision authority, or service model.
flowchart LR
A["Customer opens an account with a brokerage firm"] --> B["Cash and securities are recorded in the account"]
B --> C["Customer or authorized person submits an order"]
C --> D["Broker-dealer routes, executes, or fills the order"]
D --> E["Trade is cleared and settled through the responsible firms"]
E --> F["Confirmation and account statement record the result"]
F --> G["Customer reviews positions, cash, fees, authority, and discrepancies"]
One firm may perform several steps, or an introducing broker may use another broker-dealer to carry accounts and clear transactions. Read the agreement and statement disclosures to identify the responsible legal entities rather than relying only on the app or brand name.
| Feature | Cash account | Margin account |
|---|---|---|
| Payment for purchases | Customer pays the full purchase price | Customer may borrow part of the purchase price from the firm |
| Loan and interest | No broker loan used to pay for account purchases | Margin debit generally accrues interest under the firm’s terms |
| Collateral | No margin loan merely from buying fully paid securities | Account assets secure the broker’s loan |
| Short selling | Not available as an ordinary cash-account activity | Conducted through a margin account, subject to approval and requirements |
| Loss exposure | Investment can lose some or all of its value | Loss can exceed the customer’s deposited amount, plus interest and other charges |
| Firm liquidation right | Cash-account restrictions can follow payment or settlement violations | Firm can sell assets to address a margin deficiency under the agreement, potentially without advance notice |
| Key documents | Customer agreement, payment and settlement terms | Customer agreement, margin agreement, margin disclosure, rate schedule, and house requirements |
A cash account can hold both cash and securities. Its name means the customer must fully pay for purchases; it does not mean the account can hold only cash. Likewise, a margin account does not mean every position was purchased with borrowed money. Check the actual debit balance and transactions.
Assume an investor buys $10,000 of stock.
Cash account: The investor pays the full $10,000. If the position falls to $7,000, the unrealized loss is $3,000, or 30% of the amount invested.
Margin account: The investor contributes $5,000 and borrows $5,000 from the firm. If the position falls to $7,000, account equity before interest is:
$7,000 market value - $5,000 loan = $2,000 equity
The investor’s equity has fallen by $3,000, or 60% of the original $5,000 contribution. Interest increases the loss. If equity falls below regulatory or stricter firm requirements, the firm may demand additional assets or liquidate positions under the margin agreement.
The example ignores commissions, spreads, taxes, dividends, and changing interest. It demonstrates leverage, not a likely return or a recommendation to use either account.
Several account labels can apply at the same time:
| Dimension | Common examples | Question answered |
|---|---|---|
| Payment structure | Cash or margin | Can the customer borrow from the broker for transactions? |
| Legal ownership | Individual, joint, trust, estate, or entity | Who owns the account and has legal authority? |
| Beneficiary structure | Custodial or other beneficiary arrangement | Who acts for another person and under what governing arrangement? |
| Tax framework | Taxable or tax-advantaged account | Which tax rules and contribution, distribution, or holding restrictions may apply? |
| Decision authority | Self-directed, nondiscretionary, or discretionary | Who can decide to trade without obtaining transaction-by-transaction consent? |
| Service relationship | Brokerage or advisory | Is the core service transaction execution or ongoing advice and management? |
Do not infer one dimension from another. A retirement account can be cash or margin-limited, self-directed or managed, and held through a brokerage or advisory service, subject to the program and applicable rules. Tax treatment and permitted activity vary by account and jurisdiction and require separate analysis.
| Question | Brokerage account | Advisory account |
|---|---|---|
| Core service | Accepting and carrying out securities transactions and related brokerage services | Ongoing investment advice or portfolio management |
| Typical decision authority | Customer generally makes final trade decisions unless valid discretionary authority is granted | Adviser may provide ongoing advice or exercise agreed discretion |
| Common compensation | Commission, markup or markdown, account charge, margin interest, or other brokerage revenue | Asset-based, fixed, hourly, performance-based where permitted, or another advisory fee |
| Main documents | Form CRS, brokerage agreement, fee schedule, confirmations, and statements | Form CRS, Form ADV, advisory agreement, fee schedule, and statements |
| U.S. conduct framework | Regulation Best Interest for covered retail recommendations, plus other broker-dealer duties | Investment-adviser fiduciary framework for the advisory relationship |
A firm can offer both relationships, and the same professional can act in different capacities. Determine which capacity applies to the specific account, recommendation, trade, and fee. A discretionary brokerage account is not automatically an advisory account, and an online interface does not necessarily mean the service is execution-only.
Depending on the firm and approvals, a brokerage account may provide access to stocks, bonds, mutual funds, exchange-traded funds, options, new issues, certificates of deposit, government securities, or other investments. Product access can be limited by:
The ability to hold a security does not mean the security is suitable, liquid, protected from loss, or available for immediate sale. Trading halts, market closures, settlement, restricted positions, transfer limitations, and thin markets can delay access to proceeds.
Cash can enter a brokerage account through deposits, sales, dividends, interest, or distributions. The firm may leave it as a brokerage credit balance or move it automatically into a sweep vehicle.
| Cash arrangement | Basic structure | Protection and review questions |
|---|---|---|
| Brokerage credit balance | Cash remains owed within the brokerage relationship | Review use of free credit balances, interest terms, availability, and SIPC treatment |
| Bank-deposit sweep | Cash moves to one or more participating banks | Review interest rate, allocation among banks, FDIC eligibility and limits, exclusions, and access |
| Money-market mutual fund sweep | Cash purchases shares of a money-market fund | Review prospectus, yield, expenses, liquidity, and investment risk; it is not a bank deposit |
The highest displayed cash rate may not apply to every balance or account. A sweep can also create compensation or affiliate conflicts. Check the default option, alternatives, rate methodology, program banks, limits, and what happens when cash exceeds applicable coverage.
The customer-facing firm does not necessarily perform every account function. An introducing firm can establish and service the relationship while a carrying firm maintains the account records, holds customer assets under the applicable arrangement, processes transactions, and produces statements or confirmations.
Securities are often registered in street name, meaning the broker or its nominee appears as the registered holder while the customer is recorded as the beneficial owner on the firm’s books. This arrangement supports trading and settlement but makes accurate firm records and customer review important.
The exact division of responsibilities comes from the carrying agreement, account documents, confirmation, statement, and regulatory framework. A marketing brand, app provider, investment adviser, introducing broker, and carrying broker may be related or independent entities.
SIPC is a U.S. nonprofit membership corporation that can become involved when a SIPC-member brokerage firm fails and customer cash or securities are missing. Subject to the statute and current limits, the process seeks to return customer property or address qualifying customer claims.
SIPC does not protect:
Bank-deposit sweep balances may instead be eligible for FDIC insurance under the sweep program’s structure and current rules. Money-market mutual funds are securities, not insured bank deposits. Verify the legal entity, product, ownership category, program bank, and current coverage rather than treating a logo as proof that every balance is protected.
This article provides general U.S.-focused financial and regulatory education. It is not investment, tax, legal, accounting, brokerage, cybersecurity, or account-selection advice for a particular person, firm, account, or transaction.