Greetings traders and welcome back. Chris here, bringing you
another Survival Guide. In today's discussion, we'll be talking
about how to open a brokerage account, as well as what a brokerage
account is of course, and the things that we should consider
when we are choosing the right broker for us.
It wasn't that long ago that brokerage accounts were kind
of exclusive to either high net worth individuals or corporate clients.
In today's day and age, with how trading has
evolved, it has become incredibly accessible, and possible, for everyday
average people, and that is a beautiful thing because that
means the doors have been opened, and even you can do what
the pros have been doing for many years.
Without further ado, let's dive on into that information
and learn a thing or two about brokerage accounts and the
things to look for when we're choosing one.
If you're interested in trading futures, stocks, bonds, ETFs, anything along those lines,
the first thing that we must do is open a brokerage account.
We're going to talk about which brokerage account types
are out there, as well as how to decide on the right broker for us.
First, what is a brokerage account?
Well, by the definition, a brokerage account is an arrangement
between an investor and a brokerage service provider, which
allows the account holder to deposit money, and then authorizes the broker to place and
process trades on their behalf. They do what you are not allowed to do completely by yourself,
but at your complete orders. The brokerage company serves
only as an intermediary that processes your trades.
Basically, they are processing your wishes. While the customer, being us
the trader, is totally in control of posting and managing
the orders at all of our discretion.
The profits and losses registered by the brokerage account's owner may be considered
taxable depending on where you are located. In the US for example,
all capital gains must be claimed as taxable income.
This is why you often hear brokerage accounts being referred
to as taxable accounts as well. Brokerage accounts also offer
their holders the opportunity to trade different financial
instruments, like stocks, bonds, mutual funds, futures, ETFs,
and the list goes on and on. Both individual and corporate clients can open brokerage accounts
in today's day and age. Depending on the account type and the service provider's policy,
there might be a different requirement and account limitations
that you may have to comply with.
According to the SEC, brokerage accounts are divided into two groups.
We have cash and margin. Now, we're going to focus on the differentiation
in brokerage accounts, depending on the service type, as well
as its provider. In this, there are two main types of brokerage
accounts that you can generally choose from. We have full- service and discount brokerage accounts.
The difference is usually in the commissions and fees, account minimums,
margin trading limits, supported features, execution speed, trading assets, etc., etc.
These are the different things that separate the difference
between a full service and a discount brokerage. First,
let's cover full service brokerage accounts. As their name
suggests, full service brokerage accounts are a complete offering.
They are suitable for investors who are seeking some kind
of professional guidance and support from a personal financial
advisor. Understandably, due to the complete or partial professional
money management service included, these accounts are on the
top of the price bracket. Obviously, things cost money. Full
service brokerage accounts do come in different pricing models
despite the fact that they are all offering something of
a similar category in this branch.
They may be charging you an advisory fee, for example, or commission
fees, or both. Among the most popular full service brokerage
account providers are the popular banks including Morgan
Stanley, UBS, and Merrill Lynch, etc, etc.
Aside from the big banks, there are also specialized financial advisory firms that
offer such services as a full service brokerage account.
Then, we have the discount brokerage accounts.
The popularity of these has been booming. Service providers
like Charles Schwab, E-Trade, Fidelity, Vanguard, and recently and probably most notably,
Robin Hood, are all experiencing
an exponential boom in the number of their clients. The difference
between brokerage accounts and the full-service ones, is that they are a flexible choice
for the do-it-yourself investors. Most service providers share similar traits: commission-free investments, little
to no account minimum requirements, online account opening
etc. These are all characteristics of the discount brokerages.
Basically everything essential, aside from those professional
services, or professional assistance, that you find that the
full-service brokerage account. Discount brokerage accounts
are perfect for the low-cost investment choice for both beginners as well as professionals.
When choosing the type of brokerage account and the service
provider, there are several essential things that we should
prioritize. Beginning with, the type of management that fits your needs.
The starting point should be the way our account is managed,
or the way our account should be managed in our eyes.
Do we want to be in charge, or do we prefer an active professional
management team? Or maybe the best of both worlds with some
kind of automated management? Each of these options has its pros and cons.
If you are a do-it-yourself investor and are in for
the thrill, choose a discount brokerage company because you
don't need their assistance that they're offering as a full-service,
so you don't need to pay for it. If you lack the needed skills
but can afford the professional management services,
well then, the financial aspect of having someone looking
over and helping guide you through everything, may be appealing
and you may want a full-service brokerage account.
The next thing to prioritize is the cost. If you are on a limited budget, then the full-service
brokerage accounts probably isn't a great option for you
because they usually have high initial account requirements.
Also, we want to consider how frequently we plan to make
trades. The more we trade, the more commissions
we will be charged. In that case, a discount brokerage, if
we are looking to trade a lot, is usually the better option
as those savings can accumulate over a large period of time
quite quickly. Then finally, we want to prioritize the supported assets and added services
that our account will offer.
We want to bear in mind that not all service providers
out. there are going to support things like futures, or bonds
trading for example, the list could include or disclude, pretty
much anything, and we want to make sure that whatever it is
that we are interested in investing in, is of course offered
at wherever we are going. We also want to consider the supported features.
That means the analytical tools, the trading platform's functionalities,
the support, the news feed, a real time trading data list, or all
the similar things that might be important for your particular trading strategy,
but we want to be aware of all of these that are being offered.
As a general rule of thumb, if we're comparing two equal brokers
with the only difference being one broker is offering more
assets, well chances are, we probably want to go with the
broker that is offering more assets, even if it isn't one that we're going to be trading just
yet, just for the future availability, if everything else is
perfectly even. Something else to be aware of when opening
a brokerage account is the brokerage statement. Brokerage
statements are issued by the brokerage service provider, and
they're intended to summarize your account activity and performance
for a particular period. Most brokerage service providers
issue statements on a monthly or quarterly basis. The brokerage
statement provides a snapshot of the past transactions, meaning
the past trades, and the current value of your account. This
includes how many instruments you have sold or bought during an observed period, the current
allocations in your portfolio, the amount of fees you have been charged, and just different things like that.
The brokerage statement even goes into detail regarding each
instrument in your portfolio. For example, for stocks,
it might disclose income produced by the investments, including
interest, dividends, and capital gains distribution.
Understanding how to read a brokerage statement is a valuable tool for any investor.
The first thing that a brokerage statement will show is the
account information. This section features the basic stuff
like your name, the period the statement covers, account number,
etc., and you will also find contact information,
if you need to report any mistakes. Then, the next thing is
the account summary. Here, you will find a summary of your
performance, including realized and unrealized gains, as well as losses.
You should also get a snapshot of the current value of your portfolio here.
Then, we have the portfolio detail. In this section, you usually
find an in-depth overview of your portfolio allocation, including
all assets and their performance, as well as estimated income,
yield, and ratings, all that stuff.
You can use the portfolio detail section to figure out whether
you should make any changes to your current allocations.
Then, we have the income summary.
Needless to say, you are probably already aware by the time
the brokerage statement comes of your income results,
but this is something that is still useful to take a
peek at, at least to see the summarized version of everything broken down.
Then, we have the daily activity. The daily activity is something
that includes all transactions that you have made throughout
the observed period. Should there be any discrepancies, like
trades you haven't received confirmation for that were made,
this is when you're going to want to analyze it, and then
report them. Then finally, we have disclosures. As with
any official document, the brokerage statement also has a
disclosure section, and here you'll find the legal information
regarding penalties, warnings, fee information, and just various things like that.
So, how do we go about choosing a brokerage?
Well, the truth is, there is no universal set of rules that we need to adhere to.
The reason is that different investors have different needs.
That is why before choosing a brokerage service provider,
the main thing to figure out is what your specific needs
for you are. If low commissions and account minimums are crucial,
well then, we want to go with a discount brokerage. If we
want a quick and convenient procedure, go with a broker with
a proven track record in serving its clients online via
platform with a mobile app and helpful support.
If we want access to a wide variety of instruments, then
we're going to go with someone that has market leaders within their grasp.
If we are a big money player, then we want to seek tailored
full-service brokerage companies that will help us deal with
our investments actively and maintain such a large portfolio.
The truth is, the industry is so well developed that today
there really is just no one-size-fits-all model, but there
are a ton of options to choose from. Once you identify
what your values are and what your musts are, as far as picking
a service provider, deep diving into the leading solution
providers for you are going to be the processes that you
want to take in order to better assure that you're happy
with wherever it is you're going. The most important thing
to look for is the importance of the broker's reputation,
which means we don't want to pick a broker that has zero
reputable people backing it. Just because it is something
that is a state that all brokers start in,
it's usually not a wise choice to gamble with your investments
when there are so many reliable, and already stated trustworthy options out there.
Even with places like Robin Hood, that have a more discount characteristic about them,
they have been widely tested, and are widely respected as a discount brokerage.
If your goal is to trade futures, well your specific considerations
may be slightly different than the average long-term investor,
and not every broker, and as a matter of fact a lot of brokers, still don't offer
futures. The things that we want to consider are things like the account minimum.
This is the minimum amount of money that you're going to need to get started.
You want to make sure that the amount required is a comfortable amount for you.
Then, we have whether we should apply to trade futures. This is kind of a silly one
if you are already trading, because you've already decided
that you want to trade futures, but if you're new to the
game, this is where you need to analyze if futures is right
for you before you go about choosing and picking based on
something that you don't even trade yet.
Then, we want to consider the available funding methods. How
you fund your account may be something to be aware of if
it offers easy, quick funding through, maybe, an online instant
deposit access, or gives you immediate credit, that may be
something that is appealing to you. Also, real time quotes.
Real time quotes are quite important to pay attention to
if you are trading on a day trading style, or
looking to scalp, if you want to trade on a very quick pace,
real time quotes are quite important. Also things to consider
are things like timely and adequate customer support. This
goes without saying, this is always a positive thing to have.
Platform and features, meaning different indicator options
or just different features in general that mesh well with
your strategy. Then we have the number of supported instruments.
This means that if you are looking to trade micro instruments,
or what have you, you want to make sure that the selection
that you're interested in trading is all there. Then finally,
the margin requirements. It's always important to be aware
of margin requirements because once again, it is another
financial requirement that is being asked of you.
After you have figured out which brokerage companies' offerings
best fit your needs, the next logical step is to go ahead and open an account there.
Although the procedure may differe depending on the company's
policy and your jurisdiction, in most cases, the steps are usually quite similar.
The first thing that we need to do is usually to register
and provide personal information, which is things like names,
address, phone number, assets, net worth, social security number,
all that stuff that they ask of you in order to use something
of financial availability. Then, we'll have to verify that information in some
ways. In a lot of cases, you'll usually have to pass through some kind of identity verification procedure,
or maybe it's a bill, all of them usually have something along
those lines. The next, you're usually asked to fill out a
questionnaire and the goal here is usually to help the broker
find out more about your specific risk tolerance, as well
as your investment goals, your level of financial knowledge,
a lot of different things that the broker may be required
to be aware of before they allow you to open the account.
Then finally, the last step is to fund your account, which
is quite literally just depositing money into your account
that will allow you to then begin your trading journey. After
this, you're all done, and you are ready to place your very first trade.
Now that you know exactly what a brokerage account is,
as well as the different options out there,
hopefully you'll be better suited to picking the one that
is right for you, and you'll know the questions to ask to make
sure that you're making the very best decision for you on a personal basis.
If you are just diving into the trading world,
I wish you the best of luck, and make sure you click the like
and subscribe button down below to stay up to date with the
new information that I'm coming out with on a daily basis
to keep your trading game at the top level.
But until next time folks, thank you for joining me as always.
I will see you all very soon. Cheers folks!