Brokerage accounts explained: types, opening, fees and protection

A brokerage account is the account you use to buy, hold and sell investments such as stocks, ETFs, mutual funds and bonds. The firm that runs it, a broker-dealer, executes your orders, keeps custody of your securities, and sends you statements and tax forms. Without one, an individual in the US has almost no practical way to own exchange-traded securities.

"Brokerage account" usually means an ordinary taxable account, as opposed to a retirement account such as an IRA, which is often opened at the same firm. This guide covers the taxable kinds: who can own them, the difference between cash and margin accounts, what happens when you open one, what they cost, how you are protected if the firm fails, how to check a broker's record, and how to move an account to another firm.

Account ownership types

The ownership type, or registration, decides who owns the assets, who can trade, and what happens if an owner dies.

Individual accounts

One owner, one Social Security number on the tax forms. You alone can trade and withdraw. On death the assets pass through your estate unless you add a transfer-on-death (TOD) beneficiary, which many brokers allow and which can let the account pass directly to the named person.

Joint accounts

Two or more owners, often spouses or partners. The two most common forms are:

• Joint tenants with right of survivorship (JTWROS). Each owner has an equal, undivided interest. When one dies, the survivor owns the whole account.
• Tenants in common. Each owner holds a stated share, which passes through that owner's estate rather than to the other owner.

Some states also offer community-property registrations for married couples. Joint accounts are convenient but have a real downside: any owner can usually trade or withdraw, and the assets can be exposed to either owner's creditors. The exact rules depend on state law and the firm's account agreement.

Custodial accounts (UTMA and UGMA)

A custodial account lets an adult invest on behalf of a minor under a state's Uniform Transfers to Minors Act or Uniform Gifts to Minors Act. The key facts, as FINRA's Regulatory Notice 20-07 describes them:

• A deposit is an irrevocable gift. The money belongs to the child from that moment and cannot be taken back.
• The custodian manages the account until the child reaches the age set by state law, typically 18 or 21, after which the child controls it and may use it for any purpose.
• UGMA accounts are generally limited to cash, securities and insurance, while UTMA accounts can hold almost any kind of property.

Investment income in a custodial account is the child's. Above a threshold that the IRS sets each year ($2,700 of unearned income for the 2026 tax year, twice the $1,350 amount in Rev. Proc. 2025-32), the "kiddie tax" can tax it at the parents' rate. Custodial assets also count as the student's own assets for financial-aid purposes, which can matter for college planning. Education-specific accounts such as 529 plans work differently.

Other registrations

Brokers also open accounts for trusts, estates, businesses and investment clubs, each requiring its own documents. Retirement accounts (traditional and Roth IRAs, SEP and SIMPLE IRAs) are a separate family with their own tax rules; see Retirement accounts explained: 401(k), IRA, Roth and 2026 limits.

Cash versus margin accounts

Every brokerage account is also either a cash or a margin account. The Cash vs margin accounts: differences, rules and which fits you guide covers the trading rules in depth; the essentials are:

Cash account. You pay for every purchase in full with settled money. Since May 28, 2024, most US stock and ETF trades settle one business day after the trade (T+1). If you buy a security and sell it before paying for it in full, Federal Reserve Regulation T treats that as free-riding, and the broker must restrict the account for 90 calendar days so that purchases must be paid for on the trade date.

Margin account. The broker can lend you money against your securities. Under Regulation T a firm can lend up to 50% of the purchase price of most stocks. FINRA rules require at least $2,000 of equity to trade on margin and equity of at least 25% of the market value of the securities at all times; many firms set higher house requirements. If your equity falls too low, the firm can sell your securities without first contacting you. Margin accounts are also required for short selling and for most options strategies beyond the simplest.

Rules on frequent day trading also apply to margin accounts. FINRA replaced its "pattern day trader" rule and its $25,000 minimum with an intraday margin standard effective June 4, 2026, though firms may phase in the change until October 20, 2027; the Pattern day trader rule: the legacy PDT test and the 2026 replacement guide explains the transition.

What opening an account involves

Opening an account online takes minutes, but several regulatory steps happen behind it.

1. The application

You choose the registration and account type, then provide personal and financial details. Brokers ask about income, net worth, investment experience, objectives, time horizon and risk tolerance. Those questions come from regulation: FINRA Rule 2111 lists factors such as a customer's age, financial situation, tax status, investment objectives, experience, time horizon, liquidity needs and risk tolerance as part of the "investment profile" a firm uses when it makes recommendations. The answers also decide which features the firm approves, such as margin or options trading.

2. Identity verification (CIP)

US anti-money-laundering rules require every broker-dealer to run a Customer Identification Program. Under 31 CFR 1023.220, before opening an account the firm must obtain at least your:

• name,
• date of birth,
• residential or business street address, and
• identification number: a taxpayer identification number (usually your Social Security number) for US persons, or for non-US persons a number such as a passport number.

The firm then verifies your identity, usually by checking the details against databases and sometimes by asking for a photo ID or a document such as a utility bill. This is why a broker may ask for more information or delay approval; it is a legal requirement, not a sales step. The broader duty to know the essential facts about each customer is often called KYC (know your customer).

3. Agreements, disclosures and a trusted contact

You accept the customer agreement and receive disclosures, including the firm's Form CRS (a short relationship summary that brokers must give retail investors), a margin disclosure if you request margin, and the fee schedule. FINRA Rule 4512 also requires firms to make reasonable efforts to obtain the name and contact information of a trusted contact person, aged 18 or older, for non-institutional accounts. The firm can contact that person if it suspects financial exploitation or cannot reach you. Naming one is not required to open the account, and a trusted contact cannot trade or withdraw.

4. Funding

You can usually fund an account by an electronic bank transfer (ACH), a wire, a check, or by transferring assets from another firm. ACH deposits are often available for trading quickly but may be held for several business days before you can withdraw them.

What brokerage accounts cost

Costs vary widely by firm and are listed in each firm's fee schedule. Common items:

• Commissions. Many online brokers charge no commission for online US stock and ETF trades. Options usually carry a per-contract fee, and broker-assisted trades cost more.
• Fund fees. Mutual funds and ETFs charge their own expense ratios inside the fund, and some mutual funds carry sales loads or transaction fees on certain platforms.
• Margin interest on any borrowed balance, typically at a tiered rate that falls as the balance grows.
• Account service fees, such as for paper statements, wires, low balances or inactivity.
• Transfer-out and closing fees, which many firms charge when you move an account away.
• Cash sweep yield. Uninvested cash is often swept into a bank deposit or money market fund. The rate paid on it differs greatly between firms and is an indirect cost when it is low.
• Payment for order flow. Some brokers are paid by market makers for routing orders to them. They must still seek best execution for your orders and disclose these arrangements in quarterly SEC Rule 606 reports.

How your account is protected

SIPC

The Securities Investor Protection Corporation protects customers of member brokerage firms if the firm fails and customer assets are missing. As of 2026 the limit is $500,000 per customer, of which up to $250,000 may be cash. SIPC is not like FDIC insurance:

• It does not protect against a decline in the value of your investments.
• It does not cover worthless securities you were sold, or bad advice.
• It does not cover commodity futures (outside portfolio-margining accounts), foreign exchange trades, or crypto assets that are not securities.

Protection is counted per separate capacity. According to SIPC, an individual account, a joint account and an IRA held by the same person at the same firm are each protected up to the limit separately, while two individual accounts in the same name are combined.

Segregation of customer assets

Beyond SIPC, the SEC customer protection rule (Rule 15c3-3) requires broker-dealers to keep customer securities and cash separate from the firm's own assets, which is why most failures end with customers' assets moved to another firm rather than lost. Many brokers hold securities in street name: registered in the firm's or its clearing firm's name, with you recorded as the beneficial owner. You still own the shares, receive dividends and can vote.

Check a broker with BrokerCheck

BrokerCheck is FINRA's free tool at brokercheck.finra.org for looking up brokerage firms and individual brokers. A report shows registrations and licenses, employment history, and disclosures such as regulatory actions, customer complaints and arbitrations. Before opening an account, it is worth confirming that the firm is a registered broker-dealer and a SIPC member and reading any disclosures. Investment advisers who are not brokers are listed on the SEC's Investment Adviser Public Disclosure site.

Moving an account: ACATS transfers

If you switch brokers, you normally do not sell your holdings. Instead, the new firm pulls the account through the Automated Customer Account Transfer Service (ACATS), which most US broker-dealers use. Under FINRA Rule 11870, as of 2026:

1. You submit a transfer request to the receiving firm, matching the account title and number on your old statement.
2. The carrying (old) firm must validate the request, or take exception to it, within one business day.
3. After validation, it must complete the transfer within three business days.
4. For six months after a full transfer, any residual credits that arrive in the old account, such as a late dividend, must be forwarded within ten business days.

In practice a smooth transfer takes about a week from request to completion. Delays usually come from a mismatched name or account number, or from assets the new firm cannot hold, such as one fund company's proprietary mutual funds, fractional shares or certain bonds. Those may need to be sold or left behind. A full transfer typically closes the old account, and the old firm may charge a transfer-out fee.

Moving shares in kind is not a sale, so a transfer between taxable accounts does not by itself create a capital gain.

Common pitfalls

• Choosing a joint account without thinking about control. Any owner can usually trade and withdraw.
• Funding a custodial account with money you may want back. The gift is irrevocable.
• Turning on margin by default. Many applications offer it; only enable it if you understand forced sales and can lose more than you deposit.
• Ignoring the cash sweep rate. Idle cash at a low rate is a quiet, ongoing cost.
• Selling before transferring. Selling to move brokers can realize taxable gains and leave you out of the market; an in-kind ACATS transfer avoids both.
• Skipping a TOD beneficiary. Without one, an individual account may have to pass through probate.

How Finabase helps

Finabase is a research app, not a broker: it does not open accounts, hold money or execute trades. It works alongside whatever brokerage account you use. A Finabase portfolio lets you enter the positions and trades from your account and see them valued at live prices, with cost basis, gains and dividends. Before you buy, every stock and fund has a symbol page with its quote, chart, profile and financials, and alerts can notify you when a price or indicator level you care about is reached.

Frequently asked questions

What is a brokerage account?

It is an account at a broker-dealer that lets you buy, hold and sell securities such as stocks, ETFs, mutual funds and bonds. A standard brokerage account is taxable: dividends and realized gains are taxed in the year they occur.

Is money in a brokerage account insured?

Not against market losses. If a SIPC-member firm fails with customer assets missing, SIPC protects up to $500,000 per customer per separate capacity, including up to $250,000 in cash. Cash swept into a partner bank may instead carry FDIC coverage under that program's terms.

How long does it take to transfer a brokerage account?

Usually about a week. Under FINRA Rule 11870 the old firm has one business day to validate an ACATS request and three more business days to complete it, though rejections and assets that cannot move in kind add time.

Can I open a brokerage account for my child?

Yes, through a custodial UTMA or UGMA account, in which you manage the assets until the age set by your state. The money becomes the child's property immediately and irrevocably, and the child takes control at that age.

Do I need a margin account?

Not to buy and hold stocks and funds. A cash account is enough for that. Margin is needed to borrow, to sell short, and for many options strategies, and it adds the risk of forced sales.

Summary

A brokerage account is the container that lets you own securities, and its registration (individual, joint or custodial) and type (cash or margin) shape who controls it and how much risk it can carry. Opening one involves an identity check required by US law and a profile of your finances and goals. Look beyond commissions to sweep rates and service fees, check the firm on BrokerCheck, and remember that SIPC protects against a firm's failure up to $500,000, not against market losses. When you change firms, an in-kind ACATS transfer moves the account in about a week without selling.