What Are the Requirements to Start Online Stock Trading?
Trading stocks online can save you a lot of money compared to the cost of a full-service firm. When you open an online stock brokerage account, you can buy and sell stocks for less than $10 per trade, saving you money and helping you put more of your funds to work for you. But before you open your account, you need to ensure you have all the documents required by the brokerage firm.
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Account Application
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You must complete an application to open your online brokerage account and provide the required information. You can choose to open the account entirely online by visiting the brokerage firm's website, or you can print out an application and submit it through the mail. No matter which option you choose, make sure you fill out the application completely. Submitting an incomplete brokerage firm application could cause a delay in the processing and funding of your account. Be sure to provide complete contact information, including your home and work phone numbers, in case there are questions about your account application.
Tax Information
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The brokerage firm is required to report any earnings you derive from your investments, including capital gains from stock sales and dividends and interest from the mutual funds you hold. For that reason you must provide the brokerage firm with tax information, such as your Social Security number or employer identification number. If you are opening a personal account, you can use your Social Security number for identification. If the account is for your business, you can use your employer identification number, or EIN, instead.
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Funding Source
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Before you can start buying and selling stocks in your online account, you must first fund that account, using either a check, a wire transfer or an electronic transfer from your bank account. If you open your account online, you can wire money from your bank account or do an ACH transfer. You may incur a charge if you choose a wire transfer, but most brokerage firms and banks do not charge for ACH transactions. If you prefer to open your account through the mail, you can simply write a check and submit it along with your completed application.
Optional Accounts
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When you open an online stock trading account, you may have the option to open a margin account at the same time. If you choose to open a margin account, you can buy stock with money you borrow from the brokerage firm. Trading on option can increase your returns if the stocks you choose go up in value, but it can exacerbate your losses if the stocks you buy go down. Due to the inherent risk, margin trading is best suited to sophisticated investors, and caution should be exercised before you choose to trade on margin.
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