What Everyone Needs to Know About Their Trading Account
You probably know that you need a brokerage account if you want to trade stocks and other securities. But what is a brokerage account? And why do you need one?
Stock brokers are like real-estate agents. They know all the rules regarding trading, how to execute trades, and what the SEC requires. Consequently, they’re qualified to make trades on the stock market, whereas people like you and me are not.
Many stock brokers work for large brokerage houses or agencies. Others work for individuals or on Wall Street, but those professionals are beyond the scope of this article.
What I’ll focus on here is opening and managing a brokerage account if you decide you want to trade stocks.
What Is a Brokerage Account?
A brokerage account is kind of like any other bank account: it’s typically a secure place to deposit funds.
Instead of being managed by a bank, however, it’s kept secure by a broker or brokerage firm.
Investors have contracts with brokers to deposit funds and use those funds for stock trading purposes.
I often talk about one form of brokerage account, which I also refer to as a trading account. It’s the type of account where you make your own trades online based on your research, technical analysis, and other research.
However, other brokerage account types exist. For instance, a full-service brokerage account often involves personal advice as well as trading advice. They also trade for you.
There are also lots of brokerage accounts in between. You can decide what level of service you want.
For example: Maybe you’re uncomfortable making your own trades, but YOU want to decide which trades to make. In this case, you can set up a brokerage account where you can call your broker and tell him or her what to do on your behalf.
Brokerage Account Number
Just like bank accounts, brokerage accounts have numbers associated with them. They identify which account belongs to you.
Some brokerage accounts even work like bank accounts. For example: You can write checks on them, or even use a linked debit card. In this case, the account number will accompany a routing number.
You’ll need your brokerage account number to access your information online and to verify your identity if you need to call your broker. Don’t share it with anyone.
Benefits of Setting Up a Stock Trading Account
When you have a stock trading account, you can execute trades — buy, sell, short, trade options, whatever you want to do — when you find a play you believe will be profitable. It’s how I trade. In fact, I use multiple regular trading accounts as well as a high-net-worth broker.
You can’t trade stocks without a broker. That’s simply the bottom line. Unless you’re a broker, you need a brokerage account to invest or trade.
If you’ve followed my career, then you know I’m passionate about the stock market and about teaching others to trade. I value my brokerage accounts tremendously because they allow me to earn an excellent living doing what I love.
Even if you’re not quite ready to trade, setting up a stock trading account can put you in a position to trade when you’re ready. Since many online brokers (like E*Trade, for instance) allow you to open an account without a minimum deposit, this can also give you a chance to fund your account.
For example: Let’s say you set aside $20 per week for your trading account. After 52 weeks, you could have an account funded with over $1,000.
How to Open a Brokerage Account
In most cases, traders can open brokerage accounts in minutes by filling out an online application.
Let’s use E*Trade as our example again: If you open an account with E*Trade, they’ll ask you what type you want. You select Brokerage. Then you decide whether you want to open it by yourself, jointly with someone else, as a custodian, or in some other manner. Many traders open solo accounts, or joint accounts with their spouses.
Then you’ll fill out some basic information: your name, address, phone number, and so on.
The next screen will ask for some personal information about you, like your date of birth, social security number, marital status, how many dependents you have, what you do for a living, your annual income, your liquid net worth, and total net worth.
That sounds like a lot of information, but your broker uses it to set up your account properly and make sure you’re a good candidate for the account — so make sure you’re honest and accurate.
You’ll then be asked to fill out your investment profile. Some want to know your trading goals, investment experience, and your level of options investment knowledge. Additionally, you’ll tell E*Trade how you plan to fund your account.
From there, it’s simply a matter of funding the account and getting used to the system.
How to Choose a Brokerage Account
You want a broker with good customer service, plenty of assets, and a history of meeting customers’ expectations.
Avoid joining up with brand-new brokerage firms if you don’t have a specific reason for doing so.
Aim for a broker with a track record.
Each broker has different requirements and different fees. There aren’t any overall industry standards, necessarily, except what’s required by the SEC.
So tomorrow let’s look at some different types of brokerage accounts. I’ll share with you my tips on choosing the one that’s right for you.
Editor, Penny Stock Millionaires