A brokerage account is, in general terms, an investment account that allows for the purchase and sale of securities such as bonds, stocks and funds. A brokerage account operates much like a regular bank account with little to no limitation on fund deposits and withdrawals but with the sole benefit of granting access to the stock market, cryptocurrency trade and other investment opportunities. Brokerage accounts are quite flexible in nature and allow one to invest in any security or sum without limitation. It opens doors to incredible prospects for both long term, low risk investment planning and quick, high-risk-high-return turnarounds depending on the account holder’s investment strategies, objectives and stock market knowledge. At Arnos, we strongly believe that a properly set-up and carefully managed brokerage account can be an excellent tool for investment portfolio diversification and steady revenue increase, for individuals and companies alike.
When it comes to selection of a Broker firm, one must be very careful and diligently research the market before opening a brokerage account. Today, the popularity of brokerage accounts has risen to an all-time high, which has provided opportunity for many fraudulent, cleverly designed and advertised one-day firms to take advantage of the demand and create a pool of illegitimate or high-risk providers. A brokerage firm performs an intermediary role between you - the investor and the market, purchasing and selling investments in accordance to your instructions. It also acts as a custodian for your securities and therefore its reputability, financial stability and legitimacy is of utmost importance. Furthermore, a licensed brokerage firm can provide an insurance under the Securities Investor Protection Corporation (SIPC) which secures the account holders’ assets for a sum of $500,000 in case of the firm’s bankruptcy or insolvency. Brokerage accounts can be opened via a financial institution, robo-advisor or online broker each offering their own pricing schedules and commission rates, benefits and incentives as well as ease of platform use, algorithmic guidance, customer service support and even full-service investment management. Choosing the right brokerage firm vastly depends on the investment experience you are looking for, your budget, time dedication and return objectives. In fact, with so many factors to consider it can be quite an overwhelming decision for a beginner and experienced stock trader alike which is why the professional advice of an experienced banking and investment expert can prove to be quite helpful in order to avoid unnecessary charges and potential unforeseen obstacles. For example, a couple of years back, a highly popular and esteemed broker firm called InteractiveBrokers unexpectedly decided to close all the accounts for Russian account holders, despite full compliance with their regulations and terms, leaving them appalled and in an abrupt and unexpected search for a new broker firm to hold their securities. Our experts monitor the market and changes in the regulatory frameworks on an ongoing basis and can advise our clients of potential liabilities and possible changes, as well as, provide immediate efficient solutions for any unpredicted circumstances that may arise no matter how complicated or high-risk the client’s business profile may be.
There are two main types of brokerage accounts that you can open depending on how you wish to go about purchasing your investment - which are a Cash Account and a Margin Account. A cash account in essence is a brokerage account that allows you to purchase securities only with the funds that are currently deposited or accumulated in that account. Whereas a margin account, allows you to ‘borrow’ funds from the brokerage firm in order to purchase an investment which is treated as a type of internal loan facility granted for an interest fee and with the investment itself acting as collateral. Although both accounts have their own merits and limitations, a margin account may provide more flexibility and possibility for immediate market reaction and as such being more suited for complex trading strategies. However, the risks are also quite preeminent with such an account type. In the case that the market value of investment has an unexpected fall, the brokerage firm may claim what is called a margin call which requires immediate repayment of the borrowed amount with interest. It is worth noting, that failure to promptly comply may grant the brokerage firm the authority to sell all or part of your accumulated securities at their full digression in order to cover the owed amount.
When it comes to taxation, there are many factors that need to be taken into careful consideration and thus obtaining a professional tax opinion based on your particular circumstances and investment objectives is highly advisable in order to avoid potential losses and tax liability. As a general rule, profits from brokerage accounts are usually treated differently to other income and are often subject to capital gains tax rather than income tax. Nonetheless, this may vary from case to case and other unforeseen taxation liabilities may arise from ill-advised planning. For example, when trading with a US based broker, physical persons from countries using a different currency can be liable to income tax on currency fluctuation which, in fact, has derived no actual profit for the account holder, whilst from a tax perspective this currency fluctuation is still considered as taxable income. If, however, the same case scenario was to be applied to a corporate account holder, it would be illegible to write-off any of its expenses and would not be subject to taxation on the currency fluctuation. This is just one of many possible situations where efficient planning and a properly structured investment profile can help avoid unnecessary losses, limit exposure to potential tax liability and consequently increase your profit margins.
At Arnos, we are equipped with the skills and knowledge to offer indispensable advice and comprehensive tax and legal opinions on any potential investment strategy. Our firm can assist with the selection of a suitable brokerage firm and holding structure based on your particular requirements and objectives; help with finding and appointing of a qualified professional broker dealer; undergo the entire account opening process on your behalf whether it be as an individual or a corporate entity; help with the preparation of a solid compliance portfolio and offer legal support when and if it is required.
Please feel free to contact our experts at any time for any queries or additional information that may require.
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