A brokerage account is an account that allows you to buy and sell stocks, bonds, futures, and other securities. The term is derived from the fact that it is a place where brokerages (or brokerage firms) will hold your assets. The brokerage firm will be in charge of selling your securities when you want them to be sold and buying them when you want them to be bought.
For a brokerage account to exist, there must be a brokerage firm that will take care of the trading of these stocks, bonds, or other securities for you. Some requirements must be met for such an account to exist:
- You must be 18 years old or older
- You must have a valid Social Security number or Taxpayer Identification Number (TIN)
- You must have enough money in your bank account to cover the initial deposit you will need to make for the brokerage firm to open your account. The amount is usually between $250 and $1000, depending on the type of brokerage firm and their minimum deposit requirements
- You must have an existing bank account with the same financial institution where you will be depositing funds into your brokerage account and use it for withdrawals from the same bank
How to Open A Brokerage Account?
The first step to opening a brokerage account is to contact the brokerage firm you intend to open your account at. It is important to do this even if you already have a bank account with the same financial institution where you plan on depositing funds into your brokerage account. This will ensure that there is no confusion or misunderstanding between the two and that both parties agree about what the other party wants.
The second step is to fill out an application for a new brokerage account. The application will ask you certain questions about yourself and your financial situation and then provide you with forms that need to be completed by hand for the brokerage firm to open your new brokerage account.
Once completed, they will review all of the information on the forms and then call or email you back. If they agree with everything they review, the firm will send you a letter stating that they have opened your new brokerage account and give you information about how much money should be deposited to start trading stocks, bonds, or other securities for you.
How Much Money Do I Need To Start Trading?
The amount of money that needs to be deposited into a brokerage account depends on the type of security trading one plans to do.
Different types of stocks, bonds, and other securities, such as options, futures, and commodities, require different amounts of money and different sizes of accounts depending on what type of security(s) one wants to buy or sell. According to experts at Sofi, online stock trading is fairly inexpensive and easy to get started with, but the minimum deposit is relatively small.
The minimum for stocks is usually around $500, although some brokers will require a more substantial amount of money to open an account. For example, Charles Schwab requires a minimum deposit of $10,000 to open an account. Some brokerages like E-Trade require $1,000 or even $5,000 as a minimum deposit.