Brokerage Accounts: How to open one, account types, and tips & tricks - Baltimore Post-ExaminerBaltimore Post-Examiner

Brokerage Accounts: How to open one, account types, and tips & tricks

If you have an interest in trading on the stock market, then the first thing you need to do to get started is to set up a brokerage account. 

A brokerage account is an account traders must set up with brokers to be allowed to trade on the stock market. Traders can deposit funds they want to invest, and withdraw profits. They can be similar to bank accounts as the trader receives an account number, and some firms even allow them to write cheques with them. However, the difference is that you cannot trade on the stock market with a regular bank account, it must be a brokerage account.

How to Open an Account:

Opening a brokerage account is a relatively straight-forward process. 

First, you should do some research brokers and find one who you believe can provide a service that accommodates what you need to get started, and can help achieve your goals. Popular brokers include E*Trade, Interactive Brokers, Fidelity, and TD Ameritrade, however, they are many more. 

A broker will want information such as your date of birth, name, and social security number. Once they know who you are, they will want to know information such as your marital status and if you have any dependents, this is because these factors contribute to your tax rates. They will also need more relevant information about you as a trader, such as your net value and experience. Setting up an account is usually free, however, the average rate of commission per trade across the industry is 7%

Although each broker has their own rules and requirements, many require a minimum amount of money to be deposited into the account before you can start trading, others may require you trade at least once during a certain period of time, for example, you just trade a minimum of once a month, while some will require a certain amount to remain in the account at all times.

Types of Brokerage Accounts:

There are several different types of brokerage accounts and plans available from brokers, suitable for traders of all levels. Accounts can be opened jointly by more than one person, or opened by yourself as an individual trader. 

Cash-only Account

A cash-only account means that traders must have the right amount of funds in their account by the time the settlement day arrives for a particular trade. The trader must be entirely self-funded and cannot ask for a loan from the broker like owners of margin accounts can. Traders with these type of accounts are restrained as they can only spend what they presently have, but are also not at risk of having to put their assets down for collateral like margin account owners do.

Margin Account

A margin account is for those who trade on the margin, which means that they can borrow money from the broker to cover large trades and pay it back. There is a risk with a margin account as a trader may lose all their money if they owe the broker that much. They also run the risk of losing the assets they put down as collateral, which could be their car or house!

Full-service Account

A full-service account is more expensive than other forms as traders can avail of more benefits and assistance. Traders are in touch with an assigned stockbroker and financial advisor who can give them information, tips, and assistance. The financial advisors can be nondiscretionary which means they cannot approve or decline transactions without the trader’s consent, or discretionary which means they can use their own judgment and make a call. Full-service accounts can even provide retirement plan services and tax advice. 

Discount Account 

Discount accounts have less fees as traders who own these accounts are on their own. These accounts are often just online, so traders may never interact with a broker. These accounts are more suitable for highly experienced traders who won’t need assistance and additional services. 

Tips and tricks:

As mentioned earlier, the average rate of commission per trade is 7%. As these fees are per-trade, traders are better off making large trades at once, as opposed to smaller ones over the course of the day. For example, rather than buying 500 shares in two separate transactions and paying 7% commission twice, a trader can simply purchase 1000 shares at once. 

Traders like to open accounts with brokers who charge as little fees and commission as possible, however, brokers with no charges have their own drawbacks. For example, Robinhood is free to use but has limits on what traders can do and how much they can invest. 

Trading on the stock market is risky regardless of whether a trader has a margin account or not. Stocks can be volatile and unpredictable, which means, new traders should be fully confident in their abilities before investing their hard-earned cash into the market. A way for new traders to familiarise themselves with the market is to paper trade. Paper trading, also known as virtual stock trading, is a simulation of the stock market. Traders can buy and sell stocks without investing real money to learn the ropes before taking a stab at the real deal. 

New traders can also use StockstoTrade, which is a service that provides training, information, and customer service to new traders and more experienced ones who want to refine their skills. 

Before settling on a broker, customers should keep a few things in mind. Traders need to choose their broker for a reason. In order to compete with one another, different brokers will try to offer services to entice brokers to open an account with them. For example, a broker offering free financial advice is enticing for inexperienced traders, another might offer commission-free trading so long as the trade is below a certain amount of money or shares. Furthermore, one broker won’t be charging the same fees as another, traders need to weight out of the broker charging more offers a service that makes up for the price. A cheaper broker might not be the best value with all things considered. It’s advised to read customer testimonials and a company with a good reputation. Another thing to keep in mind is to trade with a company that has good customer service. Due to how quickly the stock market moves, traders need a broker with reliable customer service they can get in contact with instantly if a problem arises with their account in the middle of a trade. 

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