Online Brokers Key Terms

Find key terms for online brokers to make the right choice for your business

By Sandy Baker

One of the many ways people can invest in the stock market is by using online brokers. Advanced and beginner investors can take control of their investment portfolios through these self-service accounts. There are many terms associated with online brokers that are essential to learn prior to investing. For example, an investor will need to determine if he wishes to open a cash account or a margin account. Investors must weigh their risk tolerance and consider various aspects like limit order and options investing.

Cash account

A cash account is a type of trade account offered by many online brokers. Investors can only use the cash they have in their accounts.
Try: The North American Securities Administrators Association provides more information about a cash accounts.

Margin account

An alternative option to the cash account is the margin account. The brokers offer a line of credit to be used to purchase securities using their brokerage services. The funds are based on collateral.
Try: Investopedia offers more information on margin account brokerage accounts.

Options

Option investing is popular in many online brokerages. An option is a contract to buy or sell a specific product. The product varies, but is called the underlying instrument or underlying interest.
Try: The Options Industry Council provides more information in their thorough review of options investing.

Limit order

A limit order is very helpful to investors who are investing in the worldwide marketplace, which operates virtually 24 hours a day. This allows an investor to avoid buying or selling an investment at a price that is too high or too low. It is an option provided by most online brokerage services to manage accounts.
Try: The U.S. Securities and Exchange Commission provides more information on limit orders, including how they are used.

Term treasury mutual funds

Term treasury mutual funds are a type of investment often able to be traded using online brokers. The U.S. Treasury issues the Treasury note, which is held within the term treasury mutual fund.
Try: The Saturday Evening Post provides more information on term treasury mutual funds and other mutual funds investors can utilize.

Investment risk, risk tolerance

Every investor needs to find their comfort level in investment risk. Often called risk tolerance, this term is used to establish the limitations an investor places on the amount of risk he or she is willing to take.
Try: Entrepreneur Magazine provides an article on investment risk and risk tolerance measurements.