As tempting as the amenities provided by a brokerage firm may sound, have you ever wondered what’s in it for them? And why and how they are able to pull off these tempting offers to woo customers?

The answer lies in the different types of accounts a brokerage firm has to offer. There are usually three kinds of brokerage accounts as listed below:

Cash-management account
This is the most basic kind in this category.

In this account where the investor places his funds in order to trade. Depending upon the type of cash-management account, an investor may choose to have a full-service account, which provides expert financial advisors and helps develop investment plans, and at the discretion of the investor, the financial advisor can be chosen as his power of attorney. The broker helps manage the account for the client and charges a fee either as a commission or advisory fee. An advisory fee can be between 0.5 and 1.5% of the total account balance, while a commission can be a small percent of the money invested in that particular commodity.

A margin account
This type of account is of a slightly sophisticated kind. In this case, the investor buys his securities with the money borrowed from his broker. However, these accounts have much stricter requirements and collaterals, and additionally, the Federal Reserve limits the borrowing margin to at most 50% of the total amount that was invested. Although, the brokers still charge a relatively minimal rate of interest to ensure their customers are encouraged to invest in margin accounts.

Discount brokerage account
This account is apt for veteran investors, who are looking to be more independent when it comes to trading and investing. These accounts offer minimal services for a much significantly cheaper fee as compared to that of a full-service account. Some online brokerage accounts such as E*Trade simply only offer a secure platform, with no opening cost and a minimum deposit of as low as $500 with a commission fee of around $10 per transaction.