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How to Open a Brokerage Account

Before you learn how to open a brokerage account, you’ll need to understand what a brokerage does and how it does it. People often get the terms brokerage and money manager confused. A brokerage is an entity that agrees to hold an investor’s money and allows them to initiate trades. The consumer is the customer in this model.

What's a Brokerage? A Short Overview

Up until recently, the brokerage space has been notorious for being overwhelmingly expensive – even to the point where you would save money using a real-life money manager. Now, brokerages, especially online brokerages, are cheaper and more accessible than ever.

If you want an in-depth description of what a brokerage does, check out Benzinga’s “What is an Online Broker?” guide. If you want to save some time, here’s a quick breakdown of brokerages duties and services:

  • Facilitates the buying and selling of securities
  • A brokerage can be found online or at a brick-and-mortar location
  • There are three types of brokers: full-service, discount, and robo advisors
  • Charge a fee to facilitate trades

Now that you fully understand what a brokerage is, you may be ready to open an account.

Step 1: Gather the Information You'll Need to Apply for an Account

Every brokerage will require a sign-up of some sort. Other than the paperwork, here’s what we’ll think you’ll need:

  • A day job: Although not an official requirement, all investors should have one to keep capital flowing.
  • Knowledge about the stock market and securities: Unless you are using a financial advisor

Apart from your knowledge and mental readiness to trade, you’ll need to gather some paperwork. The SEC requires brokerages to collect customer names, addresses, social security numbers, and dates of birth. You’ll also need your bank account information, and routing numbers. 

Step 2: Choose Your Broker

Intuitively, your next move should be doing your due diligence in researching the best online brokerages worth managing your money. Check out Benzinga’s 2018 Best Online Brokerages for a full list of our picks and methodology.

If you don’t have time, here are most important things to keep in mind when looking for a brokerage

  • Customer service: 24/7 live customer service is ideal, but not always available. You want to look for reliable brokerages with a strong customer service track record. Look for live chat options, email, telephone, and in-person customer support.
  • Fees: They can slowly eat away at your returns. These include ETF trade fees, mutual fund trade fees, options contract fees, options base fees, broker-assisted trade fees, IRA annual fee, and IRA closure fees. The lower the fees, the better.
  • Investor education: If you’re new, this is very important if you want to keep trading. Trade decisions can often be influenced by using watch lists, alerts, several charting tools, options profit and loss statements, screeners, and videos.
  • Securities: You’ll have the ability to trade stocks, bonds, ETFs, forex, options, commodities, futures, or mutual funds, among a variety of other financial instruments.

And, here are some quick picks for our favorite brokerages:

Step 3: Report, Fund and Trade

Once you pick your brokerage and fill out the paperwork to open an account, you’re ready to start trading!

First, you need to decide which account you want to fund and how much. Ask yourself these questions:  What are your investment objectives? Will you be day trading, focusing on value investing, or saving for retirement?

Decide how much you plan to fund in certain accounts and what your allocation should be. A rule of thumb for basic allocation purposes is:

[100-Age=Equity allocation]

For instance, if you are 20 years old, your portfolio should consist of 80% equity and 20% fixed income assets. The younger you are, the more aggressive your asset allocation will be. 

An aggressive versus conservative asset allocation. Source: Finra.gov

Now, you just have to start trading. Just remember to do your research ahead of time. Always keep in mind that trading costs will eat away at your profits by increasing your cost basis per share.

Final Thoughts on Opening a Brokerage Account

Picking the right brokerage to serve you will take some time, but picking the right brokerage is the hardest decision. Once you open an account, you can start trading, investing, and play the market with ease.