How to open a brokerage account: step-by-step instructions

What to do so you can start trading

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If you want to invest your money in assets like stocks and bonds, you’ll need to open a brokerage account. The process might seem overwhelming if it’s your first time opening one, but it can be straightforward.

The brokerage account that’s right for you will depend on your investment goals, how much risk you’re willing to take on and the level of support you need.

Key insights

  • Start the process by determining your investing goals and comparing the features and costs of brokerage accounts.
  • Next, apply for a brokerage account and fund it by making an electronic funds transfer or writing a check.
  • Finally, pick your investments, monitor your account to see how it’s performing and make adjustments as needed.

What is a brokerage account?

A brokerage account allows you to invest in assets like stocks, bonds and mutual funds. Once you’ve funded the account with cash (by depositing a check or electronically transferring money from a bank account), you can use the funds to buy investments.

When you sell investments, you can reinvest that money into other investments or cash out. At the end of the year, you’ll receive a statement from your brokerage account that describes your investments and earnings, which is a handy tool for tax purposes.

6 steps to opening a brokerage account

If you’re thinking about opening a brokerage account for investing, follow these six steps to get started:

Decide on your investing goals
Think about what you want to accomplish: saving for retirement , building a nest egg for your kids, creating an income stream or safely storing your assets. You should also determine how much risk you’re willing and able to take on.

“Investment goals are typically based on one’s tolerance for risk, in addition to their investment timeline,” said Richard Gardner, CEO of Modulus, a technology company serving the fintech and finance community. “Those in their late 20s typically accept higher risk than those about to retire, for example.”

If you’re having trouble identifying your goals, you might need help from a financial advisor . Where and how much you’ll invest is a personal decision, so don’t feel pressured to follow in others’ footsteps.

“While friends and family may have copious amounts of advice to offer, it's important to remember that your situation is likely different than theirs and, therefore, what worked for them may not be right for you,” said Daniel Colston, a certified financial planner and the founder of Upward Financial Planning.

“Consider factors such as your financial objectives, time horizon, and how comfortable you are with market fluctuations. These considerations will help you make informed decisions about the type of brokerage account and investment strategies that suit your needs.”

Choose your type of broker
There are several types of brokers, each with different features, services and fee structures. Three of the most common are:
  • Full-service brokers: These provide a wide range of services, including personalized investment advice, executing trades on specific securities, managed investment accounts and more. They often have higher commissions and fees since they’re so personalized.
  • Discount brokers: This type won’t give you investment advice. Rather, the broker serves as an intermediary and helps execute trades at stock exchanges when you give a buy or sell order. Since discount brokers mostly do what you ask, they charge lower commissions and fees than full-service brokers.
  • Robo-advisor: This is an automated system that can help you identify your investing goals, make investments, monitor your portfolio and automatically adjust it as needed. In essence, it’s an investing platform that uses algorithms to make decisions. Since it’s digital, the costs are often much lower than the other two options.

If you have a complex portfolio or investing goals or want a lot of one-on-one assistance and don’t mind paying higher fees, a full-service broker might be right for you. Conversely, if you have simple investing goals, the automated features of a robo-advisor may be enough.

» MORE: Best investment apps for beginners

Choose your type of account
There are two basic brokerage account types to choose from: cash accounts and margin accounts.
  • With a cash account , you must pay for the total amount of the securities you want to buy with the money available to you. You can’t borrow money to make the trade.
  • With a margin account , you can trade using the money you borrowed from your brokerage firm. The securities you purchased are collateral for the loan your brokerage firm made to you.

When you sell the securities you bought on margin, you must repay your brokerage firm the borrowed amount plus interest. Remember that since you’re using borrowed money to make trades, margin accounts have more risk than cash accounts.

Compare commissions and fees
“Brokerage accounts can come with various fees and commissions, including trading fees, account maintenance fees, and advisory fees,” said Colston.

“Some brokerages may offer commission-free trades for certain assets or have tiered pricing based on account balance or trading activity. It's crucial to understand the fee structure of the brokerage account you choose to avoid any surprises down the road.”

You should also consider the costs in the context of your overall financial plan.

“Be sure the fee structure matches your goals, otherwise it may significantly affect your returns,” said Gardner.

Submit your application
The application process will depend on the brokerage firm you’ve selected, but you can usually do this online or in person. It typically takes only a few minutes to complete if you do it online.

You’ll need to provide personal information such as:

  • Name
  • Address
  • Social Security number
  • Employment details

“Additionally, you may need to answer questions related to your investment experience, goals and risk tolerance to help the brokerage comply with regulatory requirements,” said Colston.

Fund your account
You can fund your account by electronically transferring money or even by writing a check. With most brokerage firms, you can directly connect your bank account to your brokerage account. This allows you to easily fund transfers in both directions.

You can usually start using your account as soon as the funds are available. Depending on your financial institution, brokerage firm and the funding method you use, your funds may be available as soon as the same day, or they may take as long as 14 days to clear.

How to start investing with your brokerage account

Once you’ve opened and funded your account, you can finally choose the investments you want to buy.

If you have a managed account, you may be able to choose between a specific group of funds, or a professional money manager might be assigned to choose investments that fit your risk tolerance and investing goals. If you have a DIY account, you make all the decisions.

“Based on your investment goals and risk tolerance, you may choose to invest in stocks, bonds, mutual funds, exchange-traded funds (ETFs) or other investment products. It's essential to research and understand each investment type, as well as diversify your portfolio to minimize risk,” said Colston.

“After you've made your initial investments, it's crucial to monitor your portfolio regularly and only make adjustments as needed based on changes in your financial goals or market conditions. These changes may involve rebalancing your portfolio, selling underperforming assets or adding new investments that align with your objectives.”

Picking your investments largely depends on the type of account you’ve chosen, your risk tolerance and your investing strategy. If in doubt, work with a financial advisor to decide on the best investments for your specific needs and financial situation.

» MORE: What is a good investment?

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Is your money safe in a brokerage account?

The money you hold in a brokerage account is only as safe as the investments you choose. Your returns will vary based on how well the investment performs. If the value of the investment decreases (for example, if a stock price goes from $20 to $10 a share), you may lose some of the money you put into the investment if you need to sell it.

The Securities Investor Protection Corporation (SIPC) is a nonprofit entity that offers customers up to $500,000 of limited protection against losses of cash and some securities held at an SPIC-insured brokerage firm. This insurance does not protect you against asset value declines; it primarily helps restore your assets at the onset of a failed firm’s liquidation.

How much money do you need to open a brokerage account?

Depending on the brokerage firm, you may be able to open an account without making an upfront deposit, but you’ll need to transfer money into it before you start buying investments. Some firms may require a minimum deposit before opening an account.

Additionally, many firms only provide certain services to high-net-worth individuals, such as those with at least $1 million in liquid assets.

Do you pay tax on a brokerage account?

You’ll pay tax on any income you earn on the funds you hold in a brokerage account. So, if you sell a security you hold in the brokerage account for a profit, you’ll need to pay income taxes on the capital gain (the purchase price of the asset minus the sales price and any fees). You don’t need to pay taxes on gains until the assets are sold.

Are robo-advisors the same as a brokerage?

The short answer to this question is no. If you want to trade assets on a stock exchange, a brokerage firm serves as an intermediary, helping to facilitate the transactions.

A robo-advisor is a type of investment platform offered by many brokerage firms that automates this process using artificial intelligence rather than human intervention, although some firms also use robo-advisors along with traditional human advisors.

Bottom line

The purpose of a brokerage account is to facilitate purchases and sales of stocks, bonds and other investments. The type of account you need depends on your investment goals and risk profile. Look for a brokerage that provides the support you need at a cost that fits your budget.

For example, a full-service broker might be suitable if you want one-on-one attention, have a significant investment portfolio and don’t mind paying higher fees. If you have simple needs and are OK letting an automated system handle them, you might consider a robo-advisor.

Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
  1. Securities Investor Protection Corporation, " What SIPC Protects ." Accessed March 25, 2023.
  2. U.S. Securities and Exchange Commission, " Types of Brokerage Accounts ." Accessed March 24, 2023.
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