Deposits and Withdrawals
Moving money from your bank into your brokerage account is a deposit; moving it back is a withdrawal. You need money in the account before you can buy.
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Text version · Stock Basics, lesson 3: “Deposits and Withdrawals”
Moving money from your bank into your brokerage account is a deposit; moving it back is a withdrawal. You need money in the account before you can buy.
Deposits go in, withdrawals come back
Moving money from the bank to the broker is a deposit; moving it back is a withdrawal. Only money in the account can be used for orders.
Money tied up in shares must be sold first
Only your buying power can be withdrawn. Shares must be sold back into cash first before they can go to the bank.
Withdraw sale proceeds after settlement
Sale proceeds usually can't go back to the bank until settlement is complete; how long that takes depends on the market and the broker. Deposits and withdrawals only ever go through a bank account in your own name. Be wary of anyone asking you to transfer money to an individual.
Key takeaways
- Deposit: bank → brokerage account. Withdrawal: brokerage account → bank.
- Only the buying power in your brokerage account can be used to buy stocks, and only cash can be withdrawn.
- Money already turned into shares can't be withdrawn directly. Sell first; the proceeds usually need to settle before they can go back to your bank.
- Legitimate brokers only move money to and from bank accounts in your own name. Be wary of anyone asking you to transfer to a personal account.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Don't do anything yet. Look at the "Buy" button: you have money in the bank, so why can't you buy?
- Set the amount to $5,000 and deposit it, then buy 20 shares of Ming's Coffee (costing $3,000).
- Keep the amount at $5,000 and click "Withdraw": how much actually goes back to the bank? Why?
- Click "Sell all", then try withdrawing again and see how the withdrawable amount changes.
Quiz and explanations
- 1. Your bank card has $5,000 and your brokerage account has $0. Can you buy $1,000 of stock right now?
- Answer: No, you need to deposit first.The broker can only use the money in your account, so you have to move it in first.
- 2. You deposit $5,000 and then buy $3,000 of stock. What's the most you can withdraw?
- Answer: $2,000.Only the remaining $2,000 in cash can be withdrawn. The shares have to be sold first.
- 3. Your account holds $1,000 in cash and $4,000 in stock. You want to withdraw $3,000. What should you do?
- Answer: Sell at least $2,000 of stock first, then withdraw.Only cash can be withdrawn. You have $1,000, so you're $2,000 short: sell at least $2,000 of stock (ignoring fees), wait for settlement, then withdraw.
Terms in this lesson
- brokerage account (Brokerage Account): The account you open with a broker to hold your trading cash and the shares you buy.
- buying power (Buying Power): The cash in your account you can use to buy stock right now.
- deposit (Deposit): Moving money from your bank into your brokerage account; you need to deposit before you can buy stock.
- market value (Market Value): Number of shares × current price: what your stock is worth right now.
- settlement (Settlement): The step after a trade where cash and shares formally change hands; different markets take different numbers of trading days (US stocks T+1, Hong Kong T+2).
- withdrawal (Withdraw): Moving cash from your brokerage account back to your bank; shares must be sold first before you can withdraw.