Whether you are looking for a low cost way to get started with investing or a convenient way to diversify an existing portfolio, opening an account with an online discount brokerage firm can be a smart move. These firms make it easy to buy and sell stocks with the click of a mouse, often at a deep discount compared to full-service brokerage firms.
Online discount brokerage firms typically do not offer the detailed investment advice and guidance you would find at a full-service firm. Instead, they offer deep discounts on the trades themselves – often as low as $7-10 per trade. If you comfortable making your own investment decisions, going with an online discount brokerage could save you a lot of money.
Check Out the Brokerage Firm
Before you consider opening an account with an online discount broker, it is important to check the firm out carefully. There are a number of important things to look for, from insurance coverage on client accounts to the availability of different classes of investments.
No matter which online discount brokerage you are considering, make sure it meets these criteria:
The firm should have SIPC insurance coverage in place. This Securities Investor Protection Corporation in does not guarantee that your account will not go down in value – stocks and bonds can be volatile and fluctuate in price. Instead, it protects your account in the unlikely event the brokerage firm itself goes out o business.
The availability of the investment classes you need. Some brokerage firms only allow clients to buy and sell stock, while others also provide access to bonds, certificates of deposit and mutual funds. Determine which asset classes are important to you, and choose a brokerage firm that provides them.
A clean disciplinary record with FINRA. The Financial Industry Regulatory Authority tracks consumer complaints about brokerage firms. If the firm you are considering has had problems in the past, FINRA will know about it. You can check their status – and their history – at FINRA.org.
After you have found an online discount brokerage firm that meets these criteria, it is time to so some further research – and open your account. Just follow these steps to start trading online.
Determine how much money you can set aside to invest. Check the minimum account size for the brokerage firm you are considering.
Read the terms and conditions carefully to see what fees you are subject to. Some firms impose account maintenance fees, especially for small accounts.
Gather the documents you need, including your Social Security Number or Employer Identification Number, bank routing numbers and account numbers. You can transfer funds directly from your bank to the brokerage firm, but you will need the routing and account numbers to do so.
Go to the brokerage firm’s website and create an account. You will need some basic information, like your name, address and Social Security Number,, to get started.
Complete the full brokerage application online. Read the instructions carefully as you go through the application. Some online brokerage applications are quite lengthy.
Save a copy of the finished application to your computer. Print a hard copy and keep it with your important papers.
Wait a few days for the funds you transferred to settle into your account, then log on and make sure the money is available for trading.
Go to the trading menu, choose the investments you want to buy, and make your purchase.