Stocks: Different types of Accounts
There are four major choices you have
when opening an brokerage account.
- Cash Account: The basic account where you deposit cash to
buy stocks, bonds, mutual funds, etc.
- Margin Account:
Margin basically allows you to borrow from your broker against the
cash and securities in your account.
- Option Account:
This type of account allows you to trade options, which are much
riskier investments than stocks or bonds.
- IRA account:
For people looking to setup an individual retirement account.
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What is a
Margin Account?
Margin accounts allow you to pay
for part of the cost of buying stock with money that you, in
effect, borrow from your broker. You use the account to buy on
margin, sell short, or day trade. To use the account to buy
on margin, you must have a balance of cash and securities equal to
50% of the purchase you wish to make.
When you buy on margin or sell short, you pay interest on what you
borrow but don't have to repay the loan until you sell the stock —
ideally, at a large enough profit to cover the interest. If the
value of the stock that you bought on margin or sold short
declines, and you don't have enough assets in your account to
cover the margin requirement, you may get a margin call
requiring you to deposit more money or securities to maintain your
margin requirement. If you don't, your positions will be
liquidated. Learn more on Margin
Trading. |
Commissions and Fees: Every brokerage charges a different
commissions to trade stocks. Commissions on trades vary based on things
like the type of trade (e.g. market order versus limit order). Even the
way the trade is done impacts the price; commissions are different for
online orders, touch-tone phone trades, and broker assisted trades. See
the comparison of discount and online brokers Commissions and fees
below:
| |
Scottrade |
Ameritrade |
E*Trade |
TD
Waterhouse |
|
Branch Offices Nationwide |
173 |
0 |
37 |
150 |
NASDAQ
Market Orders |
$7 |
$10.99 |
$19.95 |
$17.95 + $0.01/share over 2500 shares |
NYSE & AMEX
Market Orders |
$7 |
$10.99 |
$14.95 |
$17.95 + $0.01/share over 2500 shares |
NYSE, AMEX, & NASDAQ
Limit Orders |
$12 |
$10.99 |
$19.95 |
$20.95 + $0.01/share over 2500 shares |
|
OPTIONS
Equity or Index
Market Orders
|
$7 + $1.50/contract |
$10.99 + $1.50/contract
|
$20 +
$1.75/contract |
$17.95 + $1.75/contract |
|
Broker-Assisted Market Orders |
$17 |
$24.99 |
$49.99 |
$45.00 + $0.01/share over 2500 shares
|
Real-Time
Streaming News from Dow Jones
|
Free |
$29.99
/Month |
Not
Available
|
Not
Available |
|
Inactivity Fee
|
$0 |
* $15/qtr |
* $25/qtr |
* $25/qtr |
|
Margin Interest Rate On $7,500 Debit
Balance |
5.45% |
6.25% |
9.25% |
6.75% |
| |
* Inactivity fees imposed may be waived if
your account meets minimum balance and/or trading requirements. This is
comparison as of February 2003 |
The Hidden Fees - Beyond the commission per trade, look for the
following hidden fees:
Fees for transferring assets both into and out of an account
Account maintenance fees
Inactivity fees
Fees for not maintaining a minimum balance
Interest on margin loans
Sales charges on certain securities such as mutual funds
If you already have a brokerage account and wish to move it to another broker
the process is quite easy. Just contact the brokerage you are signing up with
and they will either do the paperwork for you or help you with the proper forms.
Next-->>
What
are DRIPs?
Success is to be measured
not so much by the
position that one has reached in life
as by the obstacles he has
overcome while trying to succeed.
-- Booker T. Washington --
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