How to open a brokerage account in 2022 • [4 Easy Steps] • Benzinga
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A brokerage account can help you start managing your savings and investing in assets. You can use such an account to transact and hold assets such as stocks, bonds, exchange-traded funds (ETFs), commodities, and cash.
A brokerage account can also be used for investing for your retirement and even for speculation using short-term trading strategies. Having a funded brokerage account allows traders and investors to take advantage of the many opportunities that exist to make money in the capital markets.
But keep in mind that not all brokerages are created equal and it is important to choose a broker that meets all of your needs and requirements. If you have absolutely no trading or investing experience, you need a broker with solid online educational resources, such as videos, webinars, and expert-written articles.
Ready to start? Read on to find out what steps you will need to take to open an online brokerage account.
1. Consider your cost limits
Cost limits consist of limits that you can set in order to create a sound idea of the personal expenses that an activity will entail. Careful consideration of your cost limits when looking for a broker will often take into account what you plan to use for your brokerage account and how much you want to deposit into it.
If you plan to use your brokerage account for investing, ideally you should have a fixed amount of money that you do not need in the near future and plan to use for investment purposes. You probably also intend to gradually grow this money into a larger nest egg over time. Your intentions will rarely include losing much money, if at all, so you will tend to choose safer investments and seek to conserve your investment capital.
On the other hand, if you plan to use your brokerage account for speculative trading, you should only use money that you can afford to lose completely, which is sometimes referred to as “risk capital”. If you’re trading with money for bills or your child’s education, your emotions can affect your trading objectivity and betray you when you really need to keep a cool head. You also may not be able to meet your basic financial obligations if you suffer a severe loss that wipes out your trading account.
2. Choose a broker
With so many excellent stock and online brokers available, it can be difficult to find the broker that best suits your needs. Your level of experience and the type of assets you plan to trade have a lot to do with which broker would be the best fit for you, so take the time to assess your experience and knowledge of the markets before selecting a broker.
Remember that brokers that support trading and investing in stocks do not always allow you to trade currency pairs, cryptocurrencies or commodities, for example.
For example, if you have been trading for years, have the capital and want to invest internationally, look for a sophisticated broker like Interactive Brokers that offers low transaction fees and access to many markets and exchanges. worldwide. This broker is supervised by all major financial regulators and gives you access to most major global financial markets including commodities, stocks, futures, options, contracts for difference (CFDs), traded funds exchange (ETF) and indices.
If you have little trading experience, limited time to pick trades, or want to participate in social trading, you can open an account with an online broker like eToro. This broker takes US clients and has great educational resources.
It also gives you the opportunity to follow a successful trader using its social trading platform, and you can immediately invest your money in the markets while you develop and test your own trading strategy in a demo account.
Seasoned investors who want to use their brokerage account to invest for retirement purposes should consider opening an account with a large brokerage that offers this type of account and access to the investment products they need. For example, well-established brokers like E*TRADE or Charles Schwab who also offer online trading platforms for added convenience might be suitable.
And if you plan to use a short-term trading strategy, like day trading stocks, you’ll probably feel more comfortable with a low-commission or no-commission broker like Robinhood. This will help prevent transaction costs from adding up when you are actively trading.
Regardless of the type of asset you plan to trade, many brokers offer new clients a practice or demo account which could give you a good idea of the quality of the broker’s services and research resources. A demo account allows you to practice trading without committing any of your hard-earned funds to determine the profitability of your trading strategy. Many platforms can also provide excellent technical and fundamental analysis research tools that you can learn to use in a demo account.
You can also check out the services of several brokers using their free demo accounts. This should give you a good idea of which broker would best suit your needs. Use the table below to compare different reputable brokers and make the decision that best suits your needs as a trader or investor.
3. Set up account
Once you have assessed your needs, chosen a suitable broker after creating several demo accounts and have money to trade or invest, you are now ready to create a real trading account.
You should already have an account with your favorite broker since you opened a demo account with them. To convert it to a live funded account, you will usually need to submit official documents proving your identity and address. If you are opening an account from the United States, be prepared to provide your social security number, date of birth, and bank details as well.
If you have a 401(k) plan, you will be limited to investing in mutual funds and annuity contracts, in addition to one or more guaranteed accounts. An interesting alternative is a 401(k) window account which is a self-directed brokerage account (SDBA) that also allows you to invest for your retirement in stocks, bonds and ETFs. The main advantage of 401(k) window accounts is that you will have many more investment options for your retirement than with a simple 401(k) plan.
Although you can take on much more risk with your retirement funds in a 401(k) window account, keep in mind that certain types of higher-risk transactions cannot be made in this type of account. Transactions involving margin trading, option purchases and futures trading are strictly prohibited in these accounts.
4. Fund your account
While many brokerages allow you to open an account without a deposit, once you have decided to fund an account, you will need to formalize your relationship with the broker. Minimum deposits for brokers range from just $1 to thousands depending on the broker you choose. You will want to choose a broker that offers an account type with a minimum deposit that you can afford.
Before funding your account, remember to make sure that you are not using the money you will need in the short term, even if you only plan to invest. Negotiating with mortgage or rent money can also have serious consequences if funds are lost, so only use venture capital to fund your account if you plan to speculate with it.
If you have never traded before and have no experience in trading and investing, you can fund a social trading account instead of a normal trading account. Social trading allows people with no trading experience to mirror and copy trades made by successful traders and investors.
Besides sharing in the profits of the copy trader, you can learn a lot about the market and trading by watching how the trader you are copying selects and manages their trades. Even if you intend to start doing your own trading, social trading could be a good option while you educate yourself on the financial markets and develop a plan to guide your investments or trading activities.
Depending on your trading or investing style, you will generally want to select positions that offer a good chance of capital appreciation. If you plan to trade short-term strategies, you will likely want to monitor active stocks with high volume and volatility.
Investors looking for income may want to stick to stocks that pay high dividends. In contrast, day traders who want to take advantage of short-term moves would focus on highly volatile stocks.
To help you get started, we’ve included a recent list of stocks showing the biggest gains and losses in the table below.
Session: January 27, 2022 4:00 p.m. – January 28, 2022 3:59 p.m.
Session: January 27, 2022 4:00 p.m. – January 28, 2022 3:59 p.m.
Best type of broker to open an account with
The best type of broker to choose to open an account largely depends on the type of trader or investor you are, the strategies you plan to use, and the assets you wish to operate in. -regulated broker to trade to protect your margin deposit or invested funds.
Once you find a suitable broker, you can simply approach them to open an account, which can usually be done online. You can even start with a demo account to check out the services before funding a real account.
Review our recommended brokers and find the right platform to open your online brokerage account today.