Opening an online brokerage account is as simple as opening a bank account. It can be done in a matter of minutes. But before you create an online account, take some time to study which broker provides you with the best services for your needs. Any new investor needs to learn how to mitigate the risk of losing money in the markets before spending hard-earned money.

Steps to Opening an Online Brokerage Account

You have a choice of dozens of brokerages you can use to buy and sell stocks, bonds, exchange-traded funds (ETFs), mutual funds, and more with the press of a button. The biggest players are given a detailed review by the Investopedia staff, with special attention to their usability, fee structure, and depth of analytic information available to investors.

Step One in the process of opening an online brokerage account is deciding whether you want a regular account or a margin account. Other steps include:

• Choosing a brokerage
• Applying for an account
• Transferring funds to the account
• Practicing trading before buying any stocks
  

Step 1: Regular Account or Margin Account?

A key decision is whether you want to use a margin account or a cash account. Using a margin account allows you to buy a larger number of shares of a stock by automatically borrowing money for investment purchases. 

The benefit of using a margin account is that you get to keep the profits from your additional shares if the stock goes up in price. The very real risk is that you’ll have to take outsized losses if the stock goes down in price.

For example, suppose that you use your margin account to buy stock XYZ. You buy double the amount of shares that you would be able to buy in a cash account. Your account balance is twice as potent as normal. But if the price of XYZ drops by 10%, the value of your trading account will decrease by 20%.  Of course, the reverse is true and a 10% increase in the value of XYZ shares would create a 20% gain. For investors who don’t want to take on that level of risk, using a cash account is best.

Step 2: Compare Brokers

Some brokerages are tailored for ease of use. Others are fashioned for sophisticated investors who demand a wide variety of research and analysis at their fingertips.

All investors need to be able to perform due diligence, decide on an asset allocation and selection strategy, and execute orders to buy and sell without error.

Online brokers vary widely in the amount of research tools they provide, such as charts, indicators, and news databases. Some brokers also offer educational resources for beginning investors. In general, the more trades you make each year, the more the quantity and quality of research tools become important to you.  Regardless of the power and breadth of tools available to you, the platform needs to be easy enough for you to use so that you don’t place accidental orders. Some additional considerations to consider:

• Brokerage account minimums: Many brokers allow you to open an account with $1,000 or less. Some even allow you to open the account without any deposit at all, although it might close the account after a few months if you don’t add funds. The brokers that offer the greatest variety of services may require an initial deposit of $5,000 or more.
• Account fees: The online brokerage industry has experienced such intense competition in the past few years that brokerage fees and trading commissions on stocks have largely been eliminated. Other kinds of fees remain, particularly for trading some other assets and for premium services, but overall it has become much less expensive to trade stocks.
• Account features: The most commonly required features for most investors include tools for selecting securities and tools to track and analyze investment performance. Some investors may want to trade fractional shares, while others want robo-advisor services. Investor education and services aimed at beginner investors vary greatly among brokerages.    
• Investment options: All brokerages in the U.S. offer access to U.S. stocks and ETFs. Some do not offer access to over-the-counter (OTC) stocks. They all differ in the degree of access they give to mutual funds, bonds, global securities, options, futures, forex, and cryptocurrency trades. You need to choose one that lists the type of assets you plan to invest in.

Step 3: Pick a Brokerage

Once you have done a thorough review and comparison of the brokerages that have the features you want, you can select the one that best fits your needs and appears to be easiest to use for what you want to do.

Your choice may be heavily influenced by additional factors such as international requirements.

Step 4: Open an Account

When you apply to open a brokerage account you’ll provide basic identification, tax, and income information to the broker.

The SEC regulates the information brokers gather from clients as part of its Know Your Client (KYC) verification standards.

For some of the newer brokerages, information gathering can be more streamlined and simplified, but even the most detailed information gathering won’t take too long. You may be required to provide tax numbers or a copy of your government-issued ID, but even the longest such procedure seems to be complete within 30 minutes.

Step 5: Fund Your Account

Your application will be screened or reviewed by a customer service agent and usually approved within a couple of hours. There may be delays in unusual circumstances such as high-traffic periods or holidays. 

Once the application is approved, you will be allowed to transfer funds from your bank accounts into your brokerage account. Here you will need the bank name, the routing number, and the account number. If you don’t feel comfortable providing this information online, the brokerage will likely give you the option of sending funds via wire transfer, though there is usually a charge for that service. 

Step 6: Simulate Trading Before Going Live

Depending on which funding option you choose, your money will be available for use in 24 hours to one week. It would be wise to practice the buying and selling process before actually finalizing your first transaction. In its simplest form, you buy stock at the lowest possible price and sell it at the highest possible price. But it is never that straightforward. There are many nuances and traps you can run into along the way, and much of the process is best learned by simple trial and error. This is best done in simulated trades, not real ones.

The Investopedia Stock Simulator can be used for risk-free practicing.

Requirements for Opening an Online Brokerage Account

There is some basic information you’ll want to have on hand. If you are not a citizen in the country where you are opening an account, additional documentation may be needed and more restrictions will apply.

Personal Information

• First and last name
• Current address
• Social Security number (or other tax ID number)
• Years of previous knowledge or experience in securities such as
• Stocks
• Options
• Futures
• Forex
• Citizenship information (if applicable)
• Military information (if applicable)
  

Banking Information

• Name(s) on the bank account
• Account type
• Bank Name
• Routing Number
• Account Number
  

The Bottom Line

Online brokerage accounts have become more powerful and less expensive over the years. They also have made the account opening process as quick and easy as possible.

That still leaves it up to you to research and choose the online brokerage that has the features you need.

Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal. Investors should consider engaging a qualified financial and/or tax professional to determine a suitable investment strategy.