The brokerage account: what it is and what it is not

A brokerage account is usually described as the account you buy shares from. The description is accurate and useless: it explains neither where the securities actually sit nor what happens if something goes wrong with the broker.

The broker is an intermediary, not a vault

The broker has access to trading and executes your instructions. The securities themselves are recorded elsewhere — at a depository, a separate organisation that keeps the record of who owns what. That record is your ownership; paper certificates stopped existing long ago.

Hence a practical consequence: a broker losing its licence does not destroy your securities. They remain recorded in your custody account and can be transferred to another broker. The procedure is unpleasant and slow, but it is possible in principle — unlike a failed bank, where money in the account becomes a claim in a queue of creditors.

How the account differs from a deposit

A deposit is a loan to a bank at interest, and the state insures it up to RUB 1.4m. A brokerage account is a record of your own property, and there is nothing to insure: a fall in the price of a security is not an insured event in any system anywhere.

What happens when you top it up

Money transferred to a brokerage account remains money until you trade — it earns nothing by itself unless the broker offers a separate mechanism for idle balances. Many people discover this a month after their first deposit.

Types of account

Alongside an ordinary account there is the individual investment account: the same brokerage account with tax relief and a minimum term attached. It is covered in The third-generation IIA: what it gives and what it restricts.

Fees

Every trade carries a broker fee and an exchange fee. They are small individually and noticeable when you trade often — see Fees: small numbers that decide the outcome.