How To Open A Brokerage Account
Let’s explore how to open a brokerage account and why you need one.
If you wish to trade stocks, mutual funds, and/or ETF’s you will need a brokerage account. The brokerage account provides you a platform that facilitates your trading. Your broker may also provide research tools for finding winning trades. They can lend you money to increase your buying power, and they also act as a storage facility as they hold the stock certificates you buy (although you can request your broker send you the stock certificates but you’ll need to send them back if you wish to trade them). Think of a broker like an auction house that provides the infrastructure to buy and sell your investments in the stock market.
1) Setup your login information.
2) Setup your Social Security info for tax reporting purposes.
3) Fund your account. You can do this through an online transfer from your bank to your broker, or you can visit an office (if they have one) to bring in the funds to deposit personally. Just like you do at a bank.
4) Your broker will then ask you if you want a margin account. This means they will lend you the same amount of cash you deposit with them. If you lose 50% of your funds, they will take the remaining 50% and get their funds back while you are left with $0 funds. They also charge interest on the money they lend you. Personally, I prefer to use leveraged ETF’s rather than use margin from broker. In this manner, I control my investments, not my broker. The broker can not sell my shares to get back any loaned funds as the leverage is in the ETF, not in the borrowing of broker funds.
5) Finally you may be asked if you trade options. If you say YES, they will ask how much experience you have in order to assess the risk you are about to take. As a beginner, I would deny any option trading. Stick to stocks and ETF’s. Once you get a little experience, you can always go back to your broker and enable option trading.
Those are the five steps you’ll need to open a brokerage account. Watch this short video as I show you how to open an account with one of my favorite brokers, Scottrade. Alas Scottrade no longer exists (bought by TD Ameritrade which was then bought by Schwab) but the video and the key points to opening an account still apply today.
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