Opening A Brokerage Account
This is similar to opening a bank account with some additional information required. There is also likely to be a minimum investment required which could be as low as $500 or $1,000. There are options when you open an account:
- Single Account: Only one individual person is allowed to trade.
- Joint Account: Two adults
- Cash Account: When you make a purchase you have to pay 100% within a few days. This is the safest route. If you don’t have the cash, don’t buy it.
- Margin Account: Where you borrow money from your brokerage account to purchase a security, for which they charge interest. You have to put up a minimum of 50% or more, with a $2,000 minimum to open an account and some firms require more. Rules for margin accounts are set by FINRA (Financial Industry Regulatory Agency http://www.finra.org/index.htm . If the price of a security declines by a certain amount, generally by 30%, then the broker will ask you to come up with the cash immediately by selling other securities to make up the amount or cash. These accounts require a higher minimum. They should also be used only by seasoned investors. Margin accounts can be very dangerous, especially in a declining or volatile market. You need to know all the rules and regulations regarding this type of account. For further information you can also go to the SEC (Securities and Exchange Commission Website: http://www.sec.gov/investor/pubs/margin.htm .
- How Do You Want Securities Held? You will be asked if you want to keep your securities such as stocks and bonds in your own name, or "street name". If it is in your name, all certificates will be sent to you for safe keeping. Most people however, use the "street name". Here a firm keeps track of the shares. They are safe and liquid, in case you want to trade them. Dividends are sent to the brokerage firm, and they will then follow your instructions if you want them re-invested or sent to you. Your shares are protected by the Securities Investor Protection Corporation http://www.sipc.org.