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What is a Trading Account?

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  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 07 September 2016
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A trading account, often called a brokerage account, is any type of account set up to help the account holder trade stocks or securities. A brokerage account can be an online service, or something that is administered through talking face-to-face with professional money managers. Customers use a trading account to make their investing process easier and quicker.

Various types of trading accounts are set up for different purposes. An Individual Retirement Account or IRA helps an account holder to trade stocks tax-free as a way of investing for their retirement years. A different type of brokerage account is set up for the day trader, an individual who wants to invest with both long-term and short-term trades to take advantage of changes in volatile markets.

The details and features of a trading account also vary. A trading account can be set up for active trading with features that let the account holder buy or sell stocks during the market day. Other types of trading accounts that are set up for long-term trading may only allow trades at the end of a market day.

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Trading accounts should allow for various types of “stock orders” that help investors to execute effective stock purchases and transactions. Limit accounts are a generally used as tools for making sure that an investor purchases only at a price that he or she is comfortable with. Stop loss orders can automatically trigger a sale if a stock slumps below a certain point. Other kinds of advanced features are desirable in a trading account, and the best trading accounts make these features user-friendly and explain them to customers.

One way that a trading account generally makes money for the broker is through commissions. Most trading accounts involve flat fee commissions for each purchase or sale of a single stock. These commissions range from several dollars to over $20 in some types of investment accounts. Trading accounts also sometimes offer different levels of service for different kinds of investors.

Using a trading account the right way can help an investor learn more about making money through buying and selling stocks. Someone who is looking at opening a trading account should have a philosophy of stock purchasing, including a strategy for either long term or short term investment. It’s also helpful to know about how to keep track of trades and profits, specifically the “cost basis” for stock sales, in order to be able to include capital gains on tax returns.

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