As a resident owner or real estate investor, you open a brokerage accounts to diversify away from the housing market. Investment securities purchased through your brokerage account may work well, while real estate values languish. Additionally, financial market investments are usually more liquid than real estate. Keep in mind that a home may sit out there for many months prior to a buyer evolves. Securities, though, can be marketed immediately for cash.
Identification
The Securities and Exchange Commission (SEC) defines a brokerage firm as a company that executes financial transactions on your behalf. The brokerage helps arrange financial markets by auction format. Trades clear at points at which the lowest asking and highest bidding costs meet. In exchange for its services, the agent charges a commission to do each trade.
Features
Your brokerage account provides access to a nearly infinite amount of strength classes. Throughout the agent, you may trade stocks, bonds, mutual funds and options. Real estate-related securities can also be available for purchase. These assets include real estate investment trusts (REITs), collateralized mortgage obligations (CMOs) and home-builder stocks. REITs and CMOs represent claims to larger real estate and mortgage portfolios, respectively. Home-builder stocks are associated with companies like Toll Brothers and Pulte, making money from developing new communities. For cash management purposes, the agent also offers a sweep account. Investopedia says that agents mechanically”sweep” cash which is not being invested into a money market accounts.
Considerations
At tax season, the brokerage firm files paperwork that will help you report your investment income and capital gains to the IRS. Investment income usually refers to stock market volatility and bond interestrates. Capital gains describe gains made on the purchase price appreciation of a particular asset. The agent prepares 1099 forms to record your trading action.
Types
Financial services companies offer full-service and discount brokerage accounts. An advisor manages your full size brokerage account and provides recommendations based on your financial objectives. Before working with the advisor, you should complete surveys associated with your current income, expenses and tolerance for risk. Beyond financial markets, the advisor may also make insurance, business and employee benefit recommendations. Discount companies attract value-conscious savers who prefer to make their own investment choices. Discount brokerage accounts are often related to online trading and low commissions. As of 2010, online trading commissions usually cost less than $10 per transaction.
Caution
The SEC cautions against phishing scams, where criminals steal your identity to access your online brokerage accounts. From that point, the burglars can place unauthorized transactions or wire money from your accounts. The transactions are usually designed to increase the cost for some stock that the criminals actually own. Then, the criminals sell off the exact same stock out of their own brokerage accounts at a gain. To avoid identity theft, you should install antivirus software on your home computer. Meanwhile, full-service brokers are prosecuted for churning accounts. Churning occurs when the agent recommends numerous trades simply to maximize his commissions — without any respect for your investment operation.