2013-01-23 / The Motley Fool

Ask the Fool

What If

Q: If I open a brokerage account and the brokerage goes bankrupt or closes, what happens to my account? — M. W., Lafayette, Ind.

A: Most brokerages carry Securities Investor Protection Corporation (SIPC) insurance, protecting your account for up to $500,000, including up to $250,000 in cash claims. (Many carry additional insurance, too.)

This doesn’t protect you against a loss in value of your holdings. Instead, it protects against the financial failure of broker-dealers. To ensure that a brokerage is SIPCprotected, check its website for assurance or call it up and ask.

Learn more about brokerages and how to choose a good one at broker.fool.com and more about the SIPC at sipc.org.

Q: I know that the market goes up and down with the buying and selling of stocks. But exactly who’s doing all the buying and selling? — T. L., Bremerton, Wash.

A: Many buyers and sellers are individual investors like us, placing small trade orders through our brokerages. There are also big institutional investors, such as mutual funds, pension funds, banks and insurance companies. And in the last few years, high-frequency trading firms that place gobs of automated orders are accounting for a lot of the market’s activity.

Stock prices fluctuate due to supply and demand. If a stock is in great demand, its price will rise. If it falls out of favor, there will be lots of sellers, and the price will keep falling until it hits levels at which others will buy.

One advantage we small investors have is that we can discover a small gem and invest in it early. When institutions -eventually start buying (they often can’t get too involved with very small companies), they’ll drive up its price, benefiting the smaller, earlier investors. Got a question for the Fool? Send it in — see Write to Us

Return to top