In this article, we tell you what a brokerage account is, why it is needed, and how it differs from, for example, a bank account. This information is important first of all for a potential investor who is focused on searching and choosing a broker, considering different options. Let's explain in more detail the mechanics of financial markets within the framework of the brokerage account issue.
What is a brokerage account
A brokerage account is a transit account between you and the financial markets. The account is managed by your broker, who can carry out operations in accordance with your goals. It is important to note that in addition to accounting for money, securities can also be accounted for in a brokerage account.
Why do you need a brokerage account
A brokerage account is needed so that a broker can transfer your money/assets through various financial market institutions to fulfill your wishes. Since the broker is a professional participant in the financial market, he understands how clearing works, stock exchange, accounts in securities and how this or that asset works.
In addition, the broker is "familiar" with many market participants — he knows the identification procedures that all stock market participants are burdened with at the regulatory level. Accordingly, after you "met" your broker, he acts on your behalf and conducts transactions with other professional participants without your participation.
Read also: How to find and choose a broker: professional tips for an investor
Types of brokerage accounts
According to the types of brokerage accounts, it is difficult to derive a certain classification, a lot depends on the specific broker and jurisdiction. Investors should pay attention to the level of access to tools, information and specify existing restrictions. If there are questions, it is always better to contact the broker directly to clarify all the nuances.
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According to the types of brokerage accounts, it is difficult to derive a certain classification, a lot depends on the specific broker and jurisdiction. Investors should pay attention to the level of access to tools, information and specify existing restrictions. If there are questions, it is always better to contact the broker directly to clarify all the nuances.
How to open a brokerage account in Ukraine
Basically, to open a brokerage account for an individual, you need:
- identification data (passport, TIN);
- contact details (phone/e-mail);
- account number (bank and securities account).
Accordingly, for a legal entity, the requirement to provide statutory documents and identification data of the signatory on the part of the legal entity is added.
The list can be supplemented if the company/natural person is a non-resident, and additional documents can be requested during the identification procedure.
After passing the identification procedure, the client and the broker sign an agreement on brokerage services. From this moment on, the investor can use his brokerage account.
Important: a brokerage company must have a license to carry out the relevant types of professional activities.
Read also: How to buy bonds in Ukraine
Replenishment of the brokerage account
After opening a brokerage account, the client forms an order for the execution of the operation by the broker. The broker creates a payment order and the client issues a payment from his bank account to the broker's bank account.
Frequently asked questions: what can be done with a brokerage account
What is the difference between a brokerage account and an individual investment account
A brokerage account is a transit account for the performance of brokerage services. Individual investment account is a concept in the draft law that is being developed by the Verkhovna Rada of Ukraine. There is still no precise understanding of the work of the investment account. It is not known whether this will be a special status of an account in securities, a bank account or a brokerage account. It is quite possible that the investment account will simply be one of the operating modes of the brokerage account.
Why can't you keep money on a brokerage account
It is possible to store money in a brokerage account, but it is not desirable — this money does not accrue interest for storage. The process of withdrawing money from a broker's account, from the beginning of the request to receiving money on the bank account, can take from several hours to several days, depending on the currency, bank operations and the broker's efficiency. Also, in case of bankruptcy or sanctions against the broker, there will be problems with withdrawing money from the broker's account.
