Choosing the best trading account may appear to be a difficult task, but it does not have to be. You should find the finest online stockbroker by choosing what type of account you want and evaluating numerous online stockbrokers.

Things to Know Before Opening Your First Trading Account

Here’s a step-by-step guide to getting started with different types of trading accounts:

1. Determine the type of brokerage account you need

What are your long-term investment goals? Let’s say you want to save for a rainy day or a specific short-term objective but don’t want to lock up your money till you retire. A regular brokerage account is a good option in this instance. You may have to pay the tax on investment income and dividends if you use these accounts, but you are free to transfer your money whenever you want. As a result, a taxable trading account is often called a conventional or normal brokerage account.

If you go with a typical trading account, your broker will probably ask if you want a cash or margin account. If you apply for margin rights, you will be able to borrow money to buy stocks, with your portfolio’s equities serving as security. You’ll have to pay a return on the amount you borrowed, and you should be aware that there are some hazards to investing in leverage.

An IRA, on the other hand, is the finest option for saving money for retirement. Traditional IRAs offer tax benefits when you invest, but you won’t be able to access your money until you’re 59-1/2 years old. You won’t get a tax break when you contribute to a Roth IRA, but qualifying Roth IRA distributions will be tax-free. You can also withdraw Roth IRA deposits (but not investment income) at any time. Finally, if you’re self-employed, you have some superior alternatives, such as a SIMPLE IRA, SEP-IRA, or individual 401(k) plan (k). You can also read a more in-depth article to help you choose the best IRA.

2. Compare the costs and incentives

Practically all the major discount brokers now provide commission-free trading. They might also give you a discount if you do something specific, like move a major investment account from another brokerage.

However, it’s critical to study each online brokerage firm’s complete price schedule, especially if you want to trade anything besides stocks (options, index funds, ETFs, bonds, and so on), as they sometimes come with additional fees. Many brokers, for example, charge a commission of $0.50 to $0.75 for each options contract, so even if the broker does not charge a basic commission, options trading will not be completely free.

3. Consider the services and conveniences offered

It’s not all about the price, especially for rookie investors. Of course, if all other factors are equal, finding the lowest price is the best option, but there are a few additional factors to consider when choosing a broker:

  • Acquiring research: Many brokers offer stock evaluations and third-party analysis from companies like Standard & Poor’s and Morningstar.
  • Foreign trading: Some brokers allow you to convert funds in your account to foreign currencies so that you can trade on international stock markets. If this is crucial to you, make sure that the broker you select enables it.
  • Fractional shares: This is particularly beneficial for beginner investors because you don’t have to be able to pay a complete share to begin investing in your preferred stocks.
  • Trading platforms: Different brokerages provide different trading systems and mobile apps, and many of them let you try them out before you register an account. Fidelity, for example, provides a demo version of its Active Trader Pro platform for potential clients to try out. If managing your account on the go is vital to you, read some evaluations of mobile broker applications.
  • Convenience: Some brokerages have an extensive network of local branch locations where you can get personalized investment advice, while others do not. Customers of Merrill Edge, for example, can get one-on-one counsel and coach at any of Bank of America’s more than 2,000 locations. Furthermore, bank-operated brokerages allow users to link their brokerage and deposit accounts, allowing real-time money transfers between the accounts and may give a “relationship discount” for doing so. As a result, even if your bank isn’t included here, it’s a good idea to see if it offers an online brokerage.
  • Other features: This isn’t an extensive list, so read over a broker’s homepage to see what they must provide before picking.

4. Fill out the new account application

You can start a new account with an online broker by filling out an application online, which is usually a quick and straightforward process. Some personally identifiable details, such as your SSN and driver’s license, will be required. Suppose you want to request margin access or the ability to trade options. In that case, you’ll have to sign additional documents, and the broker will need to know about your total wealth, job status, alternative investment assets, and investing ambitions.

5. Fund the Account

Your new online broker will most likely provide you with several choices for depositing funds into your account, including:

  • Electronic funds transfer (EFT): Funds can be transferred from an associated bank savings account to fuel the account. The funds will typically be posted to the account the following business day.
  • Wire transfer: This is the quickest way to deposit money into your account. A bank transfer is a straight money transfer from one bank to another that usually takes minutes.
  • Checks: Acceptable cheque deposit methods and fund availability differ per broker.
  • Asset transfer: This is a suitable funding strategy if you’re turning over a 401(k) or migrating current assets from another broker.
  • Stock Certificates: Yes, stock certificates are still in use. You can mail a paper warranty deed into an online trading account if you have one.

As the last point, keep your broker’s requirements in mind when filling out your new account. Many have different minimum criteria for taxable and pension funds and differing prerequisites for margin accounts.