A brokerage account is a custody and transaction account allowing the acquisition, holding, and disposition of public financial securities—including equities, fixed-income debt, mutual funds, and ETFs. Unlike checking accounts, which consolidate capital into fungible transaction cash, brokerages execute cost-basis accounting on discrete security lots. Each purchase is recorded by acquisition date and price, establishing the basis utilized for capital gains tax calculations upon liquidation.
Brokerage accounts are structured under two primary leverage regimes:
Transactions must be settled in full using available cash balances at the time of trade. While shielding the account from borrowing costs, cash accounts restrict transaction velocity due to settlement delays (standard T+1 settlement for equities as of 2024).
The brokerage extends a revolving line of credit collateralized by the securities held in your portfolio. Margin accounts allow you to bypass settlement delays, short-sell securities, and secure leverage. However, utilizing margin introduces interest expense and the risk of a margin call—where a decline in asset values prompts the broker to unilaterally liquidate your holdings to reduce loan exposure.