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How to Open a Brokerage Account

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A brokerage account is a type of online investing account that makes saving for retirement or buying securities easier. Opening a brokerage account is a crucial first step before investing in the stock market or trading forex. Not sure how to open your first brokerage account? We’re here to show you exactly how to open a brokerage account, fund your account and choose the best possible account type for your needs. 

Step 1: Choose Your Account Type

Before you begin researching how to open a brokerage account, you need to know what type of account you want to open. There are multiple types of brokerage accounts and not every brokerage offers every type of service. Let’s take a look at a few of the different types of brokerage accounts you can open. 

  • Taxable Brokerage Account: A taxable brokerage account gives you the most freedom and flexibility to make purchases and withdraw your money. You can deposit as much or as little money into your taxable brokerage account to meet your broker’s minimum balance requirements. As the name suggests, a taxable brokerage account has few tax advantages — you’ll pay tax on dividends and any income you earn day trading. However, you can also withdraw your money from a taxable brokerage account at any point without a penalty. 
  • Traditional Individual Retirement Account (IRA): An IRA is a type of brokerage account that helps you save more money toward retirement. When you contribute money to a traditional IRA, the funds you deposit can be deducted from your taxes that year. However, you’ll need to pay taxes on the money you withdraw when you reach retirement. The federal government puts an annual limit on the amount of money you can contribute to an IRA. In 2020, you cannot contribute more than $6,000 to a traditional IRA. If you withdraw money from an IRA before you turn 59 ½ years old, you’ll pay a 10% penalty. See our recommendation for best IRA accounts..
  • Roth IRA: A Roth IRA follows the same basic rules as a traditional IRA. You cannot deposit more than the annual limit and you cannot withdraw your money without a penalty before you reach age 59 ½.  The chief difference between a Roth and a traditional IRA? Taxes. When you contribute money to a Roth IRA, you don’t get to claim a deduction on your federal taxes. However, you don’t need to pay taxes on your money when you withdraw it. This allows your money to grow and compound tax-free. See our recommendations for best Roth IRAs.

Step 2: Choose an Online Broker 

Once you decide which type of account you want to open, it’s time to choose a brokerage firm you want to service your account with. There are 3 basic types of brokers: full service,  discounted and robo advisors.

  • Full-service brokers offer a range of services. They may suggest products and assets to invest in, facilitate transactions on your behalf, offer financial advising or planning services and more. Full-service brokerages are usually the most expensive type of brokerage account to manage and they often have minimum balances in excess of $100,000.
  • Discount brokers usually don’t charge annual or management fees. Instead, they charge a commission when you buy or sell an asset. These brokers are more affordable but won’t offer you personalized financial services or investing advice.
  • Robo advisors are affordable and easy to use. You’ll answer a few questions about your goals as an investor, your income and age. Your robo advisor chooses an asset allotment and automatically distributes your money using an algorithm-generated portfolio. This gives you some basic investing assistance without a full-service broker.

Many brokerages offer services in each of the 3 categories. Here are a few characteristics to look for when you choose a broker:

  • Fees: Every broker charges some form of fee for service. Research brokerages by their fee and commission structure — especially if you aim to become a frequent trader.
  • Education tools: If you’re a new investor, you may want to search for a broker that offers a free online trading tool library when you open an account.
  • Access to forex: Are you interested in trading currencies on the forex market? Not every broker offers forex trading capabilities.
  • Easy-to-use charting software: If you want to become a regular trader, you’ll want to look for a broker that offers charting software alongside your brokerage account.
  • Customer service: Though 24/7 customer service is ideal, not every company offers it. Search for a brokerage that offers a number of ways to contact its customer service team. 

Once you find the broker that’s right for you, you can open an account.

TradeStation
Commissions
$0
Account Min
$0
Get started securely through TradeStation’s website
Commissions
$0
Account Min
$0
1 Minute Review

TradeStation is for advanced traders who need a comprehensive platform. The brokerage offers an impressive range of investable assets as frequent and professional traders appreciate its wide range of analysis tools. TradeStation’s app is also equally effective, offering full platform capabilities.

Best For
  • Advanced traders
  • Options and futures traders
  • Active stock traders
Pros
  • Comprehensive trading platform and professional-grade tools
  • Wide range of tradable securities
  • Fully-operational mobile app
Cons
  • Confusing pricing structure to leave new traders with a weak understanding of what they pay
  • Cluttered layout to make navigating TradeStation’s platform more difficult than it should be
TD Ameritrade
Commissions
$0 $6.95 for OTC Stocks
Account Min
$0
Get started securely through TD Ameritrade’s website
Commissions
$0 $6.95 for OTC Stocks
Account Min
$0
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Best For
  • Novice investors
  • Retirement savers
  • Day traders
Pros
  • World-class trading platforms
  • Detailed research reports and Education Center
  • Assets ranging from stocks and ETFs to derivatives like futures and options
Cons
  • Thinkorswim can be overwhelming to inexperienced traders
  • Derivatives trading more costly than some competitors
  • Expensive margin rates
JP Morgan Chase
Commissions
$0
Account Min
$0
Get started securely through JP Morgan Chase’s website
Commissions
$0
Account Min
$0
1 Minute Review

Chase You Invest is the retail brokerage arm of JP Morgan Chase, the largest bank in the United States. While most of the firm’s products are targeted toward wealthy clientele, You Invest gives novice investors a chance to learn about markets, select the best securities and plan for future goals like retirement. No futures, forex, or margin trading is available, so the only way for traders to find leverage is through options. 

Not all investors will appreciate the basic setup and simplistic trading suggestions, but plenty more want to learn about markets but just don’t know where to get started. Chase You Invest provides that starting point, even if most clients eventually grow out of it.

Best For
  • Investors using Chase banking products
  • Mobile traders
  • Retirement savers
Pros
  • Easy to navigate
  • Functional mobile app
  • Cash promotion for new accounts
Cons
  • No forex or futures trading
  • Limited account types
  • No margin offered

Step 3: Complete an Account Application

Before you open a brokerage account, your broker must collect a little personal information from you. Some details you’ll need to provide may include:

  • Personal information: This includes your full legal name, address, Social Security number and phone number.
  • Proof of identity: This includes 2 valid forms of identification, including a photo ID.
  • Proof of address: You can do this by submitting a W-2 form, your most recent tax return or a copy of a utility bill with your name on it.
  • Your banking information: You may fund your account through a bank transfer, so your broker will need to collect your bank account number and routing number.

If you apply for an account with margin privileges, you may need to provide additional information on your income and assets. 

Step 4: Fund Your Account

Once your brokerage firm approves and creates your account, you’ll need to add funding. You can transfer funds to your new brokerage account in a few different ways:

  • Electronic funds transfer (EFT) is usually the most convenient way to transfer money from your bank account to your brokerage account. You can initiate an EFT through your brokerage account. Most EFTs take between 1 and 3 business days to be posted.
  • Wire transfers are direct bank-to-bank services completed by 3rd-party transfer services. Most wire transfers are posted within an hour of the time you approve the funds.
  • Account rollovers involve shifting funds from one brokerage account to another. Your old broker can assist you to roll over your funds and assets to a new account.

Some brokers may also allow you to fund your account with a check or even a stock certificate. You cannot fund a brokerage account with a credit card. 

Step 5: Make Your First Purchase

Once your account is funded and your funds clear, the only thing left to do is place your first buy order! Begin researching investments and get to know your broker’s platform before you enter your first asset purchase with your newly opened brokerage account.  

Open Your First Brokerage Account

Getting started in the stock or forex market can be exciting, nerve-wracking and even a little stressful. Before you make any major investments, it’s helpful to learn more about the current state of the market at large and some of the top-trending companies. Consider signing up for one of Benzinga’s daily stock newsletters or browse our list of the best stock market simulators to practice trading without a major financial investment. The better informed you are, the more likely you are to make profitable trades. 

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