How to Open a Stock Brokerage

Buy Strength and Sell Weakness

There are decisions that must be made both before and after a brokerage account is opened. The most important decision is how much control you wish to have over your account. If you will do your own research and trading, a low-cost online brokerage account may be appropriate. If you will need guidance, leave trading to a professional and hire the more expensive human broker.

Instructions

1. Decide whether to employ a retail broker or use an online trading system. The cost difference is substantial. Trade for yourself if you understand the concepts of diversification, fundamental research and technical trading. Otherwise you should consider using a human broker. Decide as well whether you will employ leverage or the buying of stocks on margin.

2. Understand the minimum requirements of the brokerage firm. Usually there is a minimum account balance that is required and some firms have minimum trading requirements (also called "inactivity" fees). IRA accounts often do not have a minimum-balance requirement.

3. Review your choices carefully. If you desire an online account, download and complete the application. There is usually a toll-free number for help in opening an account. If you choose a major brokerage, go to the office. If you just walk in you will get the first broker who is free. Meet several brokers and choose the one who understands your brokerage needs. Complete the application at the office including margin account forms if you want to leverage your account. You may need picture identification. Leave a check for the minimum-deposit amount.

4. You cannot begin trading until your opening deposit has cleared. This should take no more than two days. In the meantime, research the online and offline research you may have collected. Understand the rules of trading, especially how to use protective stops as a loss-prevention technique. If you are opening a retirement account in addition to a standard brokerage account you will need to open a separate retirement account.

5. Keep the toll-free number of your broker --- online or human --- as an alternative way to reach them in case of a power outage or travel. Understand that mistakes made trading online are your responsibility, for better or worse, until the trade is completed. Always have a human broker repeat any orders you place back to you to ensure accuracy.

6. Check that the information, particularly tax information, is correct once the account is open. Make certain that records are kept online and, if possible, offline as well. You will need these records at tax time. Be sure to keep hard copies of trade receipts so that profit and loss records and dividend records are accurately kept.

Tips & Warnings

• Brokers may guide you to investments for which you have reluctance but are high-commission trades for the broker.

• Do not give a broker unlimited trading powers. This is known as discretionary trading.

References

• Considerations Before Opening a Brokerage Account

Resources

• Choosing a Broker - The Online Trading Decision