How to Open a Brokerage Account

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A brokerage account allows you to manage your own investments, rather than relying on a stockbroker, whether you’re saving for your child’s education, using your investments to save for retirement, or saving for a down payment on a house. With the money in your brokerage account, you can buy stocks, exchange-traded funds, bonds, mutual funds, options, future, and other types of investments to grow your savings.

Different brokerage investment accounts have different prices and different support options, so you need to do some research before you dive in. Here’s what you need to know to open a brokerage account so you can start investing.

Steps to Open a Brokerage Account

The requirements to open a brokerage account can vary by brokerage, but a few general steps apply no matter who you end up working with. Here are the steps to take to open a brokerage account:

Research Different Brokerage Accounts

Before you rush into opening your own brokerage account, do your research. You have a plethora of options for where you invest your money, so you can afford to be picky. Full-service brokerages have brokers to assist you with investment advice but charge more money. Discount brokers have lower fees but won’t have the same level of advice.

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Compare the fees for the types and number of trades you plan to make through your brokerage account, as well as any annual or account maintenance fees. For example, if a brokerage account offers $5 trades as long as you make at least 150 per month, but you only plan to make a handful of trades per month, it’s not such a great deal.

In addition, if there are specific investments you are looking to make, such as certain exchange-traded funds — also called ETFs — or specialized types of securities, make sure the brokerages you are considering offer those as options at the prices you want to pay. An online brokerage account allows you to submit trades anywhere and anytime you have access to the internet.

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Decide on Brokerage Account Options

You’ll need to decide whether you want a cash account or a margin account, which depends on how you want any excess cash in the account to be managed. A cash account means you can only purchase securities with the money you have in the account. A margin account allows you to spend more than the cash in your brokerage account, but you’ll pay interest and, if the value of the shares declines too much, the brokerage can sell your shares to pay back your loan.

You’ll also need to determine whether you want to give any discretionary powers to your brokerage to make trades for you. If you want to manage your own trades, don’t give anyone discretionary authority. That way, you’re the only one who is authorized to execute trades in the account. If you would like to allow your broker to make trades on your behalf without consulting you first, you can give them discretionary authority. For example, if you have a financial advisor who you want to make trades on your behalf, you can grant your advisor discretionary authority over your brokerage account.

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Gather the Required Information

You’ll need to provide identifying information, such as your name, address and driver’s license number to the company that’s going to serve as your brokerage. The brokerage must report your trades to the IRS at the end of the tax year, so you’ll also need to provide your Social Security number.

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Learn More: 15 Best Tax Tips for Investors

Apply and Fund Your Brokerage Account

Most brokerages allow you to open a brokerage account online or by mail. You’ll need to fill out the required forms. In addition, you’ll be asked to complete a questionnaire regarding your investment purposes and risk tolerance so that the brokerage can provide you appropriate investing suggestions. Before you start trading, you’ll need to fund your account. You can deposit a check at a branch office or transfer or wire funds from another account by providing your account number and routing number.

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Last updated: May 26, 2021

About the Author

Michael Keenan is a writer based in the Kansas City area, specializing in personal finance, taxation, and business topics. He has been writing since 2009 and has been published by Quicken, TurboTax and The Motley Fool.

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