How to open a brokerage account

1. Individual taxable brokerage account. A standard investment account for buying assets such as stocks, bonds, and mutual funds. It is funded with after-tax money and has no annual contribution limits or withdrawal penalties. However, dividends, interest, and capital gains may be subject to taxes.
Best for: Personal investing, saving for goals like a home, travel or building wealth.

2. Margin account: You borrow money from your broker to purchase securities, using assets in your account as collateral. Interest is charged on borrowed funds, and if the value of your investments drops low enough, the broker may issue a “margin call,” requiring you to deposit cash or additional securities.
Best for: Experienced investors who understand the risks.

3. Retirement brokerage account: These accounts, which include traditional and Roth IRAs, are designed for retirement savings and offer tax advantages.
Best for: Long-term retirement investing.

4. Joint brokerage account: These are owned by two or more people (typically spouses), who can both access and manage the account.
Best for: Married couples or family members investing together.

5. Custodial brokerage account: A custodial account is opened for a minor by an adult who manages the account until the child reaches the age of majority determined by state law. Assets in a custodial account may be considered the child’s, even though a parent or other adult serves as the custodian. That can impact access to federal financial aid for college.
Best for: Saving for a child, teaching kids about investing.

You don’t need much time or money to open and fund a brokerage account. The process shouldn’t take more than 15 minutes and, depending on the broker, you can open your account without funding it right away.

You can have as many brokerage accounts as you want, and there is no cap on how much you can deposit into your taxable brokerage account each year.

Step 1: Choose your brokerage

This will be a long-term relationship, so choose a broker that meets your needs. Consider:

• Available account types (self-directed, managed, robo-advisor)
• Minimum account requirements
• Investment options
• Trading costs
• Retirement account offerings
• Trading platform quality
• Cash sweep interest rate
• Customer service

Step 2: Choose your account type

You may be asked if you want a cash or margin account. With a cash account, you fund your account with your own money. A margin account acts like a loan: the broker lends you money to make trades and you pay interest. If the value of your investments falls below a certain threshold, you may receive a margin call requiring you to deposit additional cash or securities.

Based on how hands-on you want to be and how much professional guidance you’d like, you’ll also need to decide among a self-directed, robo-advisor or managed account.

Step 3: Complete the online application

Once you’ve chosen a brokerage, you’ll fill out an online application. As with any financial account, you’ll need documentation that confirms your identity and a means to fund the brokerage account.

You’ll typically be asked for:

• Personal information
• A government-issued ID
• Social Security Number (or Tax ID)
• Employment information
• Bank account routing and account numbers
• Tax information
• Beneficiary information (if applicable)

Brokerages are required to verify your identity before your account can be activated. You may need to upload a copy of your ID or provide other documentation. You’ll also indicate what kind of account you want.

Step 4: Fund your account

Once your bank account is linked, you can transfer money into your new brokerage account. Some brokers have no minimum deposit, while others require an initial investment.

If the broker has an account minimum, make sure you’re comfortable investing that amount. Setting up recurring automatic contributions is a good way to slowly build your investment fund.

Be sure to check how long transfers take to become available for investing

Step 5: Select your first investments

When your account is sufficiently funded, you’re ready to build your portfolio. Choose investments that align with your financial goals, risk tolerance and time horizon.

Popular investment options include:

• Individual stocks
• Fractional shares
• ETFs
• Mutual funds
• Bonds
• Target-date or diversified index funds

Step 6: Manage your portfolio

Continue investing regularly and review your portfolio periodically to ensure it remains aligned with your goals. How often you should review your portfolio and make adjustments depends on whether you selected a managed or self-directed account or robo-advisor.

Regardless, checking at least once a year is a good rule of thumb. Rebalance your investments when needed, but avoid emotional trading or responding to short-term market swings.

Because they have lower overhead and offer fewer personalized services, online brokers typically charge lower fees than full-service brokerage firms. But it’s important to understand what charges you may face when enrolling.

• Trading commissions: These are fees charged by the brokerage each time you buy or sell a security. Many brokers now offer commission-free trading for U.S. stocks and ETFs, but commissions may still apply to other investments.
• Expense ratios: These are annual fees charged by mutual funds and ETFs to cover operating and management expenses. They’re expressed as a percentage of your investment and deducted automatically.
• Options contract fees: Fees charged for each options contract you buy or sell. Although many brokerages offer commission-free options trading, they typically still charge a per-contract fee on each options trade.
• Margin interest: If you borrow money from your brokerage to purchase investments, this is interest you pay. Rates vary by broker and loan amount.
• Account transfer (ACATS) fee: Many brokerages charge when you move assets to another firm.
• Wire transfer fees: Some brokerages offer free incoming wires but charge for outgoing transfers.
• Account maintenance fees: Some brokerages charge to maintain your account, although many online brokers have eliminated these fees.
• Inactivity fee: Though less common today, some brokers charge a fee if you don’t trade or use your brokerage account for a specified period.

Like any financial product, a brokerage account has benefits and drawbacks.

Pros

• Diversified investments have historically provided higher long-term returns than savings accounts.
• You can diversify your financial portfolio with stocks, index funds, bonds and other securities
• You can choose what and when to buy and sell, based on your goals, risk tolerance and timeline.
• Unlike retirement accounts, standard taxable brokerage accounts don’t have contribution limits.
• You can withdraw money whenever you want

Cons

• Unlike savings accounts, your investments can suffer losses
• If you are investing on margin, your broker may require you to deposit more cash or securities
• Fear or excitement can push you to buy or sell based on short-term market changes

No single brokerage firm will meet every investor’s needs, so it’s important to evaluate your priorities before opening an account. Consider these key factors when comparing brokers:

• Low fees: Avoid high commissions and fees and other costs that could reduce your investment returns.
• Easy-to-use platform: A well-designed site or mobile app will make managing investments simpler and encourage you to be more hands-on.
• Robust educational resources: Helpful articles, tutorials, calculators and other tools can help turn a new investor into a veteran.
• Diverse investment selection: Choose a brokerage that offers the types of investments you’re interested in, such as stocks, bonds, ETFs, mutual funds, futures, REITs, options or crypto
• Strong security features: Make sure there are adequate protections to safeguard your account and personal information. Look for a brokerage that is protected by the Securities Investor Protection Corporation.
• Reliable customer service: Support via phone, email and chat should be available when you have questions, not just during trading hours.

Many brokerage firms don’t require a minimum deposit to open an account but there may be a minimum purchase requirement, such as a required dollar amount for certain index funds. If this is a concern, consider choosing a brokerage that offers fractional shares, which allow you to invest smaller amounts.

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