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Will You Use the App or Website?

If you plan on doing a lot of your research or trading online, be sure to visit the website of the brokerages you're considering. The feel and usability of the site will be almost as important as the other benefits and services offered.

Some brokerage houses have been notorious for site outages during periods of high market volatility or trading. Others send brokerage account owners through a maze of recorded messages before reaching a live person on the phone.

If you're more of an app user, be sure a brokerage's app works with your device and that it is comfortable and convenient to use.

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Can you open a brokerage account with $100?

Yes, and in some instances you can start with less than $100. Of course, opening an account and using it are two different things, but you could get started with $100.

Step 2: Consider the Features You Want and Their Associated Costs

There is a great deal of focus on the standard commissions for placing a stock trade, but there is more to investing with an online broker than fees. Much of that discussion evaporated in the last quarter of 2019 when most online brokers cut their equity trading fees to zero and also reduced per-leg options commissions to zero. You will still pay per-contract commissions on most options trades, and you’ll find fees that range from $0.10-$0.65 per contract at the majority of brokers.

Some “free” trades, though, come at a hidden cost. Research and news features are light (and sometimes non-existent), and you will likely get less-than-optimal fills for your transactions since the broker has to make money somewhere. Free trades are generally paid for by routing to market makers, who pay the broker for the order flow, but who do not prioritize price improvement. 

So look for a broker who has research and education features that can help you grow as an investor, especially if you are new to investing. Check out our list of Best Brokers for Beginners as a starting point. Members of this group are recognized based on their educational resources, ease of navigation, clear commission and pricing structures, portfolio construction tools, and research resources.

What is paper trading?

Paper trading, or virtual trading, is a trading platform feature that enables the trading of stocks, ETFs, and options with virtual currency (fake money). This helpful learning tool is popular with beginners and is a great way to practice stock trading without risking real money. The two top-rated brokers that offer paper trading are TD Ameritrade and E*TRADE.

Should I Open a Brokerage Account Online?

If you feel comfortable using an online brokerage platform, then sure. Every major provider offers an intuitive and secure onboarding process. If you prefer to speak with or meet with a broker in person, you can visit a branch office of a discount or full-service broker and have them aid you in the process.

Methodology

For the StockBrokers.com 12th Annual Review published in January 2022, a total of 3,075 data points were collected over three months and used to score 15 top brokers. This makes StockBrokers.com home to the largest independent database on the web covering the online broker industry. As part of our annual review process, all brokers had the opportunity to provide updates and key milestones and complete an in-depth data profile, which we hand-checked for accuracy. Brokers also were offered the opportunity to provide executive time for an annual update meeting. Our rigorous data validation process yields an error rate of less than .001% each year, providing site visitors quality data they can trust. Learn more about how we test.

Decisions You’ll Be Asked to Make

The new account form will also ask you to make some important decisions about your account, including how you will pay for your transactions, how any uninvested cash will be managed and who will have control over and access to your account.

  • Do you want a cash account or margin loan account? Most firms offer at least two types of accounts—a cash account and a margin loan account (customarily known as a “margin account”). In a cash account, you must pay for your securities in full at the time of purchase. In a margin loan account, although you must eventually pay for your securities in full, your brokerage firm can lend you funds at the time of purchase, with the securities in your portfolio serving as collateral for the loan. This is called buying securities “on margin.” The shortfall between the purchase price and the amount of money you put in is a loan from the firm, and you will incur interest costs, just as with any other loan. There are risks that arise from purchasing securities on margin that do not come with most other types of loans. For example if the value of your securities declines significantly, you may be subject to a “margin call.” This means that the brokerage firm can either (1) require you to deposit cash or securities to your account immediately, or (2) sell any of the securities in your account to cover any shortfall—without informing you in advance of the sale. The firm decides which of your securities to sell. Even if the firm gives you notice that you have a certain number of days to cover the shortfall, the firm still may sell your securities before that timeframe expires. Also, the firm may change, at any time, the threshold at which customers can be subject to a margin call. Be sure to read carefully your new account application and any other documents that your registered financial professional gives you about margin loan accounts. Be sure that you understand how these accounts work before you sign up for one. With some firms, you sign up for a margin loan account by default unless you indicate otherwise on the application. If you have opened a margin account, but you pay for your securities in full at the time of purchase, you incur no more risks than you would in a cash account. For more information about margin loan accounts, read FINRA’s Investor Alert, Investing with Borrowed Funds: No “Margin” for Error.  

    Note: While margin loan agreements are typically used to allow investors to buy securities on margin, some firms allow their customers to take out loans for other purposes. In connection with these loans, a firm might ask the customer to sign a margin agreement. Before you borrow money from your brokerage firm-for any reason-be sure you fully understand the terms, costs and consequences.

  • How do you want to manage your uninvested cash? Sometimes there is cash in your account that hasn’t been invested. For example, you may have just deposited money into your account without giving instructions on how to invest it, or you may have received cash dividends or interest. Your firm typically will automatically place—or “sweep”—that cash into a cash management program (customarily known as a “cash sweep” program). On your new account application, your firm may ask you to select a cash management program. Cash management programs offer different benefits and risks, including different interest rates and insurance coverage. Be sure you understand the different features of the cash management programs that your firm offers so that you can make an informed decision if you are asked to choose one.  
  • Who will make the final decisions for your account? You will have final say on investment decisions in your account unless you give “discretionary authority” in writing to another person, such as your financial professional. With discretionary authority, this person may invest your money without consulting you about the price, amount or type of security or the timing of the trades that are placed for your account. Some firms allow you to indicate who has discretionary authority over the account directly on the new account application, while others require separate documentation. There may be other types of authority that you may provide over your account, including a power of attorney and authorized trading privileges. Make sure you think through the risks involved in allowing someone else to make decisions about your money.

How to Apply for a Brokerage Account

Applying for a brokerage account is easy. “You can do it within 10 minutes these days,” Failla says. “It’s really pretty simple.” You’ll generally need to provide the following information:

  • Your Social Security Number
  • Other personal information, including your phone number and home address
  • Your employer’s name and address, if you’re employed
  • Your annual income and personal net worth

You may have to answer other questions to verify your identity. You may also have to select a “core position,” or an account that will hold your money until you invest it, such as a money market fund or interest-earning cash account. You can change this selection after the account is open.

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Do you need a lot of money to use a broker?

The great news for investors these days: It’s never been cheaper and easier to get started investing. In fact, lower fees have made online brokerages more investor-friendly than ever. So you won’t need a lot of money to get started on your investing journey.

Virtually every major online brokerage allows you to get started with no account minimum, so you can start off with $5 or $500. It’s also easy to find a broker that offers no-commission trading of stocks and ETFs (and sometimes options), so you won’t rack up fees when buying or selling. With no commission, you can invest tiny amounts and have it all go into your securities.

About the only routine fee that brokers consistently charge is a “transfer-out fee” if you want to move securities to another account. And you’ll only pay that if you do make a transfer of securities, but you won’t pay for any cash transfers.

For these reasons it’s never been cheaper for investors to get started investing in the market.

How much should you start with in a brokerage account?

If you have disposable income remaining after paying your expenses each month, you can start slowly contributing your savings into a brokerage account.

It’s best to start off with what you can afford, regardless of how small, and then start gradually increasing your contributions as you’re able to do so.

Remember that investing is a game best played long, and accrued interest is still accrued interest regardless of how small the principal. Even $50 or $100 (consistently) a month can make a big difference several years down the line.

4. Decide on a brokerage firm

You've gathered your information about various firms' costs, fees and the conveniences they offer. For each brokerage, you should weigh the pros and cons as they pertain to your investment objectives and determine which broker is right for you.

For more information, check out our top picks for the best brokerage accounts for beginners or read our expert brokerage reviews.

Securities Investor Protection Corporation (SIPC)

If your brokerage firm goes out of business and is a member of the Securities Investor Protection Corporation (SIPC), then your cash and securities held by the brokerage firm may be protected by SIPC coverage up to $500,000, including a $250,000 limit for cash. If a SIPC member becomes insolvent, SIPC will ask a court to appoint a trustee to supervise the firm’s liquidation and to process investors’ claims. SIPC protection applies to most types of securities, such as stocks, bonds, and mutual funds. However, SIPC does not protect you against losses caused by a decline in the market value of your securities, and it does not provide protection for investment contracts not registered with the SEC. For additional information on SIPC please read the SEC’s fast answer on SIPC located on the SEC’s website at .

Common questions

What is a brokerage account?

A brokerage account is an arrangement between you and a licensed brokerage firm. Once your account is set up, you can deposit funds and place investment orders through the brokerage account, and the transactions will be carried out on your behalf. You have the freedom to invest in whatever you choose—stocks, bonds, mutual funds, and more—as you own all the assets in your brokerage account.

How do I get access to Schwab’s specialized trading platforms and support?

During the online application process you’ll be able to choose from several optional account features, including “Schwab Trading Services” which provides access to StreetSmart® trading platforms and priority access to Schwab trading specialists. (There are no fees to use Schwab Trading Services. Other charges may apply). By checking the box associated with the Schwab Trading Services account feature, you will automatically receive access. You can also call 888-245-6864 to request access.

What is the difference between a margin account and a cash account?

A margin account allows you to borrow against your eligible securities and can be helpful when you need to buy more securities, take advantage of timely market opportunities, or give yourself a source of overdraft protection. However, margin borrowing is not for everyone, and you should consider all risks and limitations before selecting this option. Learn everything you need to know about margin loans with The Schwab Guide to Margin.

A cash account only allows you to use the cash that you deposited to buy stocks, bonds, mutual funds, or other investments. This type of account presents less market risk as you are only investing assets that you already have, but can be limiting when timely opportunities or emergencies arise.

Can I trade options in my account?

You must be approved in order to trade options in a Schwab brokerage account. During the online application process, you can choose to add options trading and apply for one of four levels of approval based on your based on your objectives, experience, and financial position. 

Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options. Supporting documentation for any claims or statistical information is available upon request.

What other resources do you need?

While cost is an important factor in choosing a brokerage, you’ll also want to consider other traits that may improve your experience, such as:

  • Research: How much research does the broker offer? Is it in-house work or from third parties? Do you need research on individual stocks or are you looking for funds?
  • Education: Many brokers offer a ton of educational resources so you can understand how to invest effectively. Quite a few brokers offer articles and webinars on how to use their advanced products and tools, especially if you’re looking to trade more often.
  • Trading simulators: Some brokers offer trading simulators that give you a wad of virtual money and let you use the simulator to try out their platform and test your skills.
  • Customer support: If you’re just starting out, you may have a lot of questions, so good customer support can be vital. Check a broker’s availability and see if it matches up with your needs.
  • Mobile apps: If you’re looking to trade via mobile, you may want to take a peek at the broker’s app first. While some brokers are mobile-first and known for the quality of their app, almost all major online brokers offer an app that can get the job done.

Those are some of the major features that you’ll want to consider, but you may have other “must-have” features depending on your needs.

Note: Bankrate’s Brian Baker and Georgina Tzanetos also contributed to this story.

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