Yes, you can lose money in a brokerage account, and the losses can run deeper than most people expect. Investments held in a brokerage account are not protected by FDIC insurance,1 and every dollar you put into stocks, bonds, funds, or other securities is exposed to market moves, fees, taxes, and other drains that can chip away at — or wipe out — your balance. In a margin account, you can even end up owing the brokerage more than you deposited.
Market Losses Are the Most Common Way
The moment you buy a security, its price starts moving. Stocks shift with every trade during market hours. Bond prices move inversely with interest rates. When a holding trades below what you paid, your account shows an unrealized loss: the value is down on paper, but nothing is final because you still own the asset. If the price recovers, that loss reverses.
The loss becomes permanent once you sell. Selling for less than you paid locks in a realized loss, and no later price recovery of that security will undo it. The swings that produce these losses come from corporate earnings, Federal Reserve interest rate decisions, geopolitical events, and broader economic shifts. A rate hike, for example, can push bond prices down across the board and reduce your account value even if you haven’t placed a single trade.
You May Not Be Able to Sell at the Quoted Price
Liquidity is how quickly you can convert a holding to cash without moving the price against yourself, and it varies enormously across securities. Large-company stocks on major exchanges have tight bid-ask spreads, so you can usually exit near the quoted price. Thinly traded micro-cap stocks, certain corporate bonds, and niche ETFs are different.
When volume is low, the spread widens. A stock quoted at $5.00 may have a best bid of $4.50 from an actual buyer, so selling means accepting a 10% haircut before the price has technically dropped. In a market panic, liquidity can dry up even in normally liquid securities, and sellers end up accepting prices well below recent quotes.
Margin Accounts Can Put You in Debt
A standard cash brokerage account caps your losses at what you deposited. A margin account does not. Margin lets you borrow from the broker to buy more securities than your cash covers. Under Federal Reserve Regulation T, brokers can lend up to 50% of the purchase price of eligible securities.1 With $10,000 in cash, you could buy $20,000 of stock, but you owe the borrowed $10,000 plus interest no matter what the stock does.
Brokers require you to keep a minimum equity level in a margin account. FINRA Rule 4210 sets that maintenance floor at 25% of the total market value of the holdings, and many firms set their own thresholds higher.1 Drop below it and the broker issues a margin call demanding immediate cash or securities. Miss the call, and the broker can liquidate your positions without asking. In a fast crash, forced sales can happen before you even see the notice, and if the sale proceeds don’t cover what you owe, you’re left with a negative balance — an actual debt to the brokerage.
Active traders face a separate margin trap. If you execute four or more day trades within five business days in a margin account, FINRA classifies you as a pattern day trader, and the account must hold at least $25,000 in cash and eligible securities before you can place any day trades.1 Fall below that, and day trading is frozen until you top the account back up, which can strand you in positions you meant to close the same day.
Options and Leveraged ETFs Amplify Losses
Brokerage accounts give you access to instruments that can lose money faster than plain stocks. Two of the most common are options and leveraged ETFs.
When you sell (write) an options contract, you accept an obligation, not just a bet. If you sell a call and the buyer exercises, you must deliver shares at the strike price even if the market price has jumped far above it. Sell a put and get assigned, and you must buy shares at the strike even if the stock has collapsed. FINRA’s own example makes the math concrete: selling 10 call contracts for a $1,000 premium on a stock at $50, then getting assigned when the stock hits $60, produces a $9,000 net loss.1
Leveraged ETFs are marketed as 2x or 3x an index’s return, but the multiplier applies to the daily return. Daily rebalancing creates volatility decay. If the underlying index drops 5% one day and recovers the next, it ends flat, yet a 3x leveraged ETF tracking it would be down roughly 1.6% because compounding daily percentage changes is not symmetrical. Over weeks or months of choppy trading, that decay can quietly consume a large piece of your investment even when the index has gone nowhere. These products are built for short-term tactical use, and holding them long is where most people get hurt.
Fees Drain the Balance Whether You Win or Lose
Even a “zero-commission” broker isn’t free. Mutual funds and ETFs charge an expense ratio, taken annually as a percentage of assets. A 1% expense ratio costs $100 a year on every $10,000 invested, and it’s deducted regardless of performance. Over 20 years on a $100,000 portfolio, that percentage compounds into tens of thousands of dollars in foregone growth.
Regulatory fees apply on sales. The SEC’s Section 31 transaction fee is $20.60 per million dollars of sale proceeds as of fiscal year 2026,1 and FINRA separately assesses a Trading Activity Fee on sell transactions. Individually tiny, they add up for active traders. Brokerages may also charge maintenance fees, inactivity fees, paper statement fees, and account transfer fees, all deducted directly from your cash balance.
Tax Rules Can Make a Loss Worse
Once a loss is realized, tax rules decide whether it softens the blow or compounds it.
The deduction is capped. You can deduct net capital losses against ordinary income, but only up to $3,000 per year — $1,500 if married filing separately.1 Anything above that carries forward to future years indefinitely. A $15,000 net loss this year means $3,000 deducted now and $12,000 dribbled out at $3,000 per year until it’s used up.
The wash sale rule is where people trip. If you sell a security at a loss and buy the same or a “substantially identical” security within 30 days before or after the sale, the IRS disallows the loss deduction.1 The disallowed amount is added to the cost basis of the replacement shares instead of giving you the immediate tax benefit. The rule reaches across all your accounts, including your IRA and your spouse’s accounts, so selling in one brokerage and rebuying in another doesn’t sidestep it. Year-end tax-loss harvesters run into this constantly.
Holding period matters too. Gains on assets held one year or less are taxed at ordinary income rates as high as 37%. Hold longer than a year and long-term capital gains rates of 0%, 15%, or 20% apply, depending on income. Selling too early doesn’t create a loss on its own, but it takes a bigger tax bite out of any gain.
What Happens If the Broker Itself Fails
A brokerage going out of business is uncommon but real. When a SIPC-member firm fails and customer assets are missing, the Securities Investor Protection Corporation oversees the liquidation and returns securities and cash to customers, with coverage up to $500,000 per customer and a $250,000 sublimit for cash claims.1
That coverage is narrower than people assume. It only activates when the broker-dealer fails and assets are missing due to insolvency or firm misconduct.1 If a stock you own drops to zero at a healthy broker, SIPC pays nothing — that’s a market loss, not a custody failure. Account value above $500,000 is unprotected unless your broker carries supplemental “excess of SIPC” insurance from a private insurer.
Many brokerages sweep idle cash into partner bank deposit accounts. Cash sitting in those swept bank accounts may qualify for FDIC insurance up to $250,000 per bank, separate from and in addition to SIPC.1 Whether your broker offers this, and how many program banks participate, varies, so it’s worth checking what happens to uninvested cash in your account.
Fraud, Hacking, and Broker Misconduct
Criminal activity aimed at brokerage accounts runs from outside hacking to abuse by the professionals handling your money.
Phishing and credential theft let bad actors initiate unauthorized wire transfers. Most major firms offer some form of security guarantee, but the guarantees include conditions about your own conduct. Reused passwords, clicked links, or delayed reporting can be grounds for denying reimbursement. Two-factor authentication and unique passwords are the baseline.
Broker misconduct is its own category. “Churning,” where a broker trades excessively in your account mainly to generate commissions, violates FINRA’s suitability obligations. Under Regulation Best Interest, broker-dealers must act in the retail customer’s best interest when making recommendations, without placing their own financial interest ahead of the customer’s. That standard gives investors more ground to challenge recommendations shaped by the broker’s commissions. When fraud involves electronic communications, federal wire fraud statutes can apply,1 but a criminal case against the perpetrator doesn’t guarantee you get your money back. Recovery in fraud cases is slow and often incomplete.
The State Can Seize a Dormant Account
Stop using an account long enough, and the state can take the assets. Every state has unclaimed property laws requiring financial institutions to turn dormant accounts over to the state treasury after a set inactivity period. The dormancy window varies by state and asset type but generally runs three to five years with no customer-initiated activity — no trades, no logins, no responses to the broker’s outreach.
You can reclaim escheated assets from the state, but the process is bureaucratic and the state may have already liquidated your securities at whatever price they fetched. That forced sale can lock in losses or trigger taxable gains you didn’t plan for. Logging in or making documented contact with the broker at least once a year is enough to prevent it.