How to Start a Brokerage Account: Step-by-Step Guide to Start
A brokerage account
is a financial account that you can open with an investment firm. Unlike bank
accounts, brokerage accounts offer you access to different investments,
including stocks, bonds, and mutual funds. Moreover, a brokerage account is
called taxable accounts, because investment income within a brokerage account
is taxed as a capital gain.
It's a great idea to open a brokerage account if you are ready
to invest in the stock market. Opening a brokerage account is the first step
for someone to enter the investing world. I lived in Indonesia, where it can be
difficult for me to open a brokerage account in the United States. Most U.S.
brokerage firm doesn't allow foreigners from different countries to open a
brokerage account since they usually require social security number to apply.
If you are based in countries that are not based in the United
States and reading this article to find the solution to open a brokerage
account, you are in the right place. In this article, I will share information on how anyone from
anywhere can start a brokerage account so that you can start investing in the
stock market. Moreover, I will inform you which brokerage firm is right for you.
Before opening a brokerage account, you'll need to do some
research to figure out which one is right for you. Look at your options at
financial companies like Vanguard, Fidelity, Schwab, and others. If you are not
a U.S. citizen, you might need to find another solution to opening up a
brokerage account that allows you to invest in U.S. equities.
I was fortunate to be able to open a brokerage account in the
United States. When I returned to Jakarta, Indonesia, after my studies in San
Francisco, I decided to open a U.S. brokerage account. In the beginning, I have
trouble opening one because most U.S. brokerage firms require me to provide a
social security number. After spending some time researching to find a U.S.
brokerage account that allows foreigners to invest, I encountered E-Trade Financial, a U.S. brokerage account, but at that time (2013)
have a branch in Singapore. Due to this reason, I was able to open a U.S.
brokerage account through Singapore. I called them through Skype to discuss the
requirement to open the brokerage account.
However, this method doesn't work anymore since E-Trade Financial doesn't do business in Singapore. My U.S.
brokerage account, however, remained since I had opened the account in the year
2013. Till today, I am still able to buy or sell stocks through my E-Trade
Financial brokerage account. Even when this method is not applicable anymore,
there are still methods of how foreigners can invest in U.S. equities.
One method is opening up an account with Interactive Broker. I learned this from my brother, who was looking
around for a U.S. brokerage firm to work with. My brother, an Indonesian
citizen, was able to open a U.S brokerage account using Interactive Broker
successfully. So if you are a non-American citizen, you still have options to
open up a brokerage account in the United States.
If you are a U.S. citizen and reading this article, you have
tons of options to choose which brokerage firms are right for you. The first,
and most important, is using a user-friendly website and great overall trading
experience when using the brokerage account. You can simply use the same broker
like me, E-Trade Financial if you don't want to go through the hassle of
finding the right one for you. I am content with the service E-Trade Financial
provides and had a pleasant experience when using their platform. It was
user-friendly and straightforward, but they also have excellent customer
service where I can rely on. Also, the cost of trading stock is as low as $6.99
per trade. It's really cheap and affordable for beginner investors to invest.
However, if you still want to see your options, I have listed a
list of options for the best online stock trading site. Below are the lists of
U.S. brokerage firms that I recommend.
- E*Trade
- Fidelity
Step 2: When to Open a Brokerage Account.
Brokerage accounts are ideal for savings or goals
that are further than five years away. If you are interested in starting your
commitment to investing in the stock market, then you should open a brokerage
account. However, please put aside a sizable emergency fund before putting your
hard-earned money into the taxable account. You want to have money apart in
case of any emergency that requires you to use cash. You don't want to end up
selling stocks because you needed the money. You want to treat this brokerage
account as if it's a retirement portfolio.
I decided to open my own U.S. brokerage account when I realized
I have to start saving and investing in my future. I wanted to build a stock
portfolio where I can rely on when I visit the United States. In 2015, I
decided to create my portfolio into a dividend growth stocks
portfolio where I use
value investing in analyzing companies. I decided to make my portfolio into a
dividend growth stocks portfolio because I like the fact that I can get passive
income (dividends) when I need them in the future. I can quickly transfer money
from one account to another account using the E-Trade Financial brokerage
platform. It's convenient for me to receive and move money around when I needed
it.
Step 3: How to Better Ensure Your Brokerage Firm is Secure.
Financial institutions, including brokerage firms,
fail. One way to lessen the risk of being caught in the mess is only to open a
brokerage account at strong institutions. Brokers will make their financial
statements available to you to examine, and you can also find out their
parents' company online.
You want to inquire about the broker's SIPC coverage. Check the
overage and rules carefully and only invest the assets in your brokerage
account to give you maximum protection at all times.
Step 4: Margin Brokerage Account vs. Cash Brokerage Accounts.
I would recommend using cash brokerage accounts if
you are going to invest in stocks without using the margin. Choosing a margin
brokerage account exposes you to risks to which you shouldn't be exposed to. If
you are still new to stock investing, it's highly recommended to choose a cash
brokerage account. You don't want to end up like the 20-year-old
rookie investor who committed suicide after realizing that his account has negative
$700,000.
However, if you are going to trade on margin, you may want to
see how the brokerage account structures it's margin terms (e.g., some stocks
traders wish to a more advanced form of margin calculation known as "portfolio
margin" in their brokerage account), and the rates at which margin loans
are extended.
I prefer sticking to a cash brokerage account since I dislike
the risk of using a margin brokerage account. I have a margin brokerage
account; however, I do not use the margin when investing in a stock. Technically,
I treat my brokerage account as if it's a cash brokerage account so that I
don't put myself in a deep hole. I only purchase stocks with the money I have
available in the account. This is to prevent me from getting a penalty fee
while using the margin tool.
Step 5: Begin the Application Process.
After you decide which brokerage firm to choose
from, you still have to deal with the formality of opening an account. No
matter which firm or type of account you choose, there is some information
you'll need to have on hand before you start the account opening process.
You'll need basic data about yourself and other account holders,
such as social security number, date of birth, and address. Moreover, you'll be
asked questions about the nature of your employment. If you're not a U.S.
citizen, you'll need to have your passport, driver licenses, ID, and birth
certificates handy.
Brokers are required to collect some other information to keep
up with a set of rules referred to as "Know your client." This is to
prevent money laundering and the funding of terrorism. They also need to make
sure that you are whom you say you are to avoid being involved in identity
theft.
You'll also be asked how you feel about taking financial risks
and how long you expect to hold the investments. Moreover, you'll be asked
regarding your tax status, whether you are single or married. Your annual
income will also be asked so that the broker will know your financial condition
better. Don't worry about whether your responses are 100% accurate. Brokers are
not required to verify or update this information over the course of your
relationship.
All brokers are mostly collecting the same information from the
new account holder. The entire process should take you about 15 to 30 minutes.
By then, you have successfully opened your online brokerage account.
Step 6: Fund Your New Account and Start Investing.
Once your brokerage account is opened, you'll be
able to create your online credentials, such as user ID and password for
logging on.
To get started trading or investing, you'll need to transfer
money into your account. There are a few options you can choose from, but by
far, the easiest way to go is to link a bank account to your brokerage account.
You'll need your bank's nine-digit routing number and account number. You can
find the routing number on a check or the bank's website.
You also can write a check and mail it, but this will take a
week or more. The benefit of linking a bank account to your brokerage account
is the ease of moving money back and forth to U.S.-based brokers. Some brokers
will also let you set up a regular monthly transfer of cash from checking to
the brokerage account. This can be a useful tool if you are saving and
investing in your financial goal. Getting in the habit of making regular
deposits is ideal for someone who wants to save up towards a goal.
It will take about one day to seven days, between the opening of
your account and when you can start to trade. This usually depends on the
methods of deposit to your account. Take the time to become familiar with the
broker's site and mobile apps. This will help you to understand the function of
their platform. I would recommend creating a watch list of stocks that you are
interested in investing in. This also enables you to get the latest news and
information about the stocks on your watch list.
Once your deposit has made it into your new account, you can
start making stock transactions.
Taking Everything into Account,
I hope this article is useful for you who are
interested in opening an online brokerage account. Even if you are not a U.S.
citizen, there are options for how you can start investing in American
equities. Opening up a brokerage account is the first step to start investing
in the stock market. It might sound dumb, but many people didn't even get
started in opening a brokerage account.
If you are interested in investing in the stock market, I
recommend you open a brokerage account. You might not have the money to invest,
but do consider opening one just to be prepared. Personally, I have opened up
many brokerage accounts with different brokers. I invest in both Indonesia stocks
and also American stocks. There is no harm to having an account brokerage
opened. I hope you can start investing and make some good returns!
About Hansen Bun
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