How to Set Up a Brokerage Account

When you are ready to move from just stashing money into a savings account or certificates of deposit to actively investing in stocks, bonds and other securities, you’ll need a brokerage account. Traditional brokers offer good service, but you can find many quality online brokerage firms that offer low fees and an array of investor education tools, according to Forbes.com. The application process is pretty much the same for any brokerage account, although you’ll have to send in photocopies of some documents for an online account. Read the account documentation and agreements and ask questions so you understand the terms before you sign anything.

Verify that the brokerage firm you choose is reputable. Don’t rely on slick-looking websites or promises of low fees and large profits. You can easily check out a brokerage firm online by using the free BrokerCheck tool provided by the Financial Industry Regulatory Authority on its website.

Fill out an account application form. You may do this online or by visiting the brokerage firm office in person. You must provide your Social Security or tax identification number and a valid government-issued ID, such as a driver’s license. The form will also ask for your income and net worth. The broker should ask about your investment goals, experience as an investor and the level of risk you are willing to take when you invest.

Select either a cash or margin account. Cash accounts require you to pay cash up front for all of your transactions. A margin account is needed to borrow money from your broker to buy stocks on margin and for any other transaction that involves borrowing money. Margin transactions are riskier than cash investments, in part because brokers can sell the securities you’ve bought and use the proceeds plus all of the money in your account to repay borrowed funds. Ask what kind of account you are opening if it is not specified. Some brokers set up margin accounts for new customers unless you specify a cash account. You must sign a margin agreement when you open a margin account.

Choose the features you want for your brokerage account. You can elect to make your own investment decisions or grant the broker discretionary authority to make investment choices for you. Another choice is to have securities registered in your name or in the broker’s name. Ask for a list of the fees and commissions you’ll be charged. Finally, request contact information so you know where to call to get answers to questions.

Deposit funds in your new brokerage account. If it is a margin account, FINRA rules normally require a minimum balance of $2,000. For cash accounts, the brokerage firm sets its own minimum initial deposit requirements. These vary widely, but you can find online brokers who will open a brokerage cash account with small initial deposits and no minimum balance requirement.