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How to Open a Brokerage Account: A Step-by-Step Guide

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Matt Frankel, CFP®
Author: Matt Frankel, CFP®
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If you're ready to start investing, you'll first need to open a brokerage account. By deciding what type of account you want and then comparing several online stock brokers, you should be able to choose the one that best meets your needs.

In this guide, we'll cover each step of opening an investment account.

How to open a brokerage account

  1. Determine the type of brokerage account you need
  2. Compare the costs and incentives
  3. Consider the services and conveniences offered
  4. Decide on a brokerage firm
  5. Fill out the new account application
  6. Fund the account
  7. Start researching investments

Let's break each step down.

1. Determine the type of brokerage account you need

What are your investment objectives? Are you saving for a short-term goal, or do you plan on holding your investments until you retire? For example, to save for a rainy day or short-term goal, you probably want to open a taxable brokerage account. This account type doesn't have tax advantages -- you may have to pay tax on investment profits and dividends -- but you are free to withdraw your money anytime penalty-free.

Traditional brokerage account: Cash vs. margin

If you choose a traditional brokerage account, your broker will likely ask if you want a cash account or margin account. Opening a margin account means that you can borrow money to buy stocks, with the stocks in your portfolio serving as collateral. You'll pay interest on the borrowed money, and there are other risks to investing on margin.

However, there are reasons you may want to open a margin account even if you don't plan on borrowing money. For example, if you sell a stock or make a deposit, a margin account can make those funds available far sooner.

Retirement brokerage account

Individual retirement accounts (IRAs) are best for saving for retirement. Traditional IRAs can get you tax deductions when you contribute to them, but you won't be able to use your money until age 59 1/2. Contributions to Roth IRAs don't give you a tax benefit when you make them, but qualified Roth IRA withdrawals will be tax-free. Plus, you can withdraw Roth IRA contributions (but not your investment profits) whenever you want.

There are special account options best-suited to self-employed persons, including SIMPLE IRAs, SEP IRAs, and individual 401(k)s. Compare the pros and cons of each to pick the best IRA for you.

Many people choose to open multiple brokerage accounts, such as a taxable account and an IRA, to keep money in separate baskets. You can open multiple accounts to efficiently save for different goals.

2. Compare the costs and incentives

These days, virtually all of the major discount brokers offer commission-free stock trading. Your broker may give you discounts and bonuses for special actions, such as transferring over a large investment account from another broker.

Review brokerage firm fees to get the best prices. This is doubly important when you trade investments other than stocks (options, mutual funds, ETFs, bonds, etc.), since these often come with additional fees to trade.

For example, many brokers charge a commission in the range of $0.50 to $0.75 per options contract. Even if your broker doesn't charge a base commission, options trading could cost you.

Mutual funds are another area with big fees. Most brokers offer some mutual funds on a no-transaction-fee basis, but commissions can range as high as $74.95 if your desired fund isn't on the list. A few brokers have recently dropped their mutual fund commissions altogether, and trading with these rare few can help you keep mutual funds fees to a minimum.

Many brokers offer bonuses in order to attract business, and you don't need to be a millionaire to take advantage of them. The bonus shouldn't make or break your decision all by itself, but it's a piece of the puzzle worth considering.

Top Brokers of 2024

Public
Rating image, 4.0 out of 5 stars.
4.0/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
 = Best
= Excellent
= Good
= Fair
= Poor
Fees:

$0 commissions, 1%-2% crypto markups

Account Minimum:

$1

Highlights:

Public is an investing platform that simplifies trading stocks, bonds, ETFs, options, and crypto. With zero fees on many trades, Public stands out as a low-cost brokerage, while also providing yield-focused products to help you earn returns on your cash.

Learn More for Public

On Public's Secure Website.

J.P. Morgan Self-Directed Investing
Rating image, 4.0 out of 5 stars.
4.0/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
 = Best
= Excellent
= Good
= Fair
= Poor
Fees:

$0 per trade

Account Minimum:

$0

Highlights:

With no commissions, access to trade fractional shares and cryptocurrency through Robinhood Crypto, Robinhood is a no frills but efficient brokerage account.

Learn More for J.P. Morgan Self-Directed Investing

On J.P. Morgan Self-Directed Investing's Secure Website.

E*TRADE
Rating image, 4.5 out of 5 stars.
4.5/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
 = Best
= Excellent
= Good
= Fair
= Poor
Fees:

Commission-free; other fees apply

Account Minimum:

$0

Highlights:

E*TRADE offers low fees and tons of account types. If you need it, chances are, E*TRADE has it. You can access advanced features through its popular Power E*TRADE platform. Open an E*TRADE account to trade fee-free mutual funds and do all your investing in one place.

Learn More for E*TRADE

On E*TRADE's Secure Website.

3. Consider the services and conveniences offered

Pricing isn't everything -- especially for new investors. Consider the following services when picking a broker:

  • Access to research: Many brokers provide their own stock ratings as well as access to third-party research from firms such as Standard & Poor's and Morningstar.
  • Foreign trading: Some brokers let you convert money in your account into foreign currencies to trade on international stock exchanges.
  • Fractional shares: This can be especially important to new investors since it lets you buy shares of big companies with small dollar amounts.. Many online brokers offer fractional share trading.
  • Trading platforms: Different brokerages offer a wide variety of trading software and mobile apps. Some actually let you test out platforms before opening an account. For example, Fidelity offers a demo version of its Active Trader Pro platform for you to test-drive. Also, read reviews of brokers' mobile apps if being able to access your account on the go is important to you.
  • Convenience: Some brokerages have large networks of local branch offices you can visit for face-to-face investment guidance. For example, Merrill Edge customers can get one-on-one advice and guidance at thousands of Bank of America locations. Brokers operated by banks let customers connect brokerage and checking accounts, making it easy to transfer money between accounts in real time -- and may offer some sort of "relationship discount" for doing so. For this reason, it's also a good idea to check if your bank has an online brokerage, even if it's not mentioned here.
  • Other features: This isn't an exhaustive list. Explore your favorite broker's website for a full list of features available.

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.

TIP

Find the right brokerage account for your needs

Check out our expert-reviewed lists to determine the best option for you.

5. Fill out the new account application

You can apply to open a new account online. This is generally a quick and painless process with online brokers. You'll need some identifying information, such as your Social Security number and driver's license. You may need to sign additional forms if you're requesting margin or options-trading privileges. Your broker will collect information about your net worth, employment status, investable assets, and investment goals.

6. Fund the account

Your new broker will probably let you move money into your account in one of a few ways:

  • Electronic funds transfer (EFT): Transferring funds from a linked checking or savings account is a convenient way to fund an account. In most cases, the funds will post to your brokerage account on the following business day.
  • Wire transfer: The quickest way to fund your account. Since a wire transfer is a direct bank-to-bank transfer of money, it often happens within minutes.
  • Checks: Acceptable forms of check deposits vary between brokers. Some brokers have branch locations that can accept check deposits, but you can certainly mail checks.
  • Asset transfer: If you're rolling over a 401(k) or transferring existing investments from another broker, that's an acceptable funding method.
  • Stock certificates: Yes, these still exist. If you have a paper stock certificate, you can deposit it via mail into an online brokerage account.

Keep your broker's minimums in mind when funding a new account. Many brokers impose minimums for taxable accounts and retirement accounts. They may have separate minimums for margin accounts.

7. Start researching investments

Congratulations on taking the initiative and opening a brokerage account! Your future self will thank you for taking this important step on the road toward financial security.

Now comes the fun part: investing in stocks. Before diving in, it's a good idea to spend some time learning the basics of how to responsibly choose stocks, bonds, and funds. Part of that is creating a well-diversified portfolio personalized to your goals and risk tolerance.

LEARN MORE: How to Research Stocks

Motley Fool Money's best stock brokers

Uncover the names of the select brokers that landed a spot on Motley Fool Money's shortlist for the best online stock brokers. Our top picks pack in valuable perks, including some that offer $0 commissions and big bonuses.

Best Stock Brokers

Still have questions?

Read more about brokerage accounts:

FAQs

  • To open a trading account, you must apply for a new account online. The brokerage will ask for proof of your identity (Social Security number and driver's license). You may also be asked for the following:

    • Email and phone number
    • Employment status
    • Expected yearly income
    • Net worth
    • Investment goals and time horizon

    If you want to transfer money to your brokerage directly from your bank account, you'll need to provide a bank account number and routing number.

  • Most discount brokers will give you a brokerage account for free. They make money when you trade stocks or purchase optional premium features, like margin investing or exclusive stock research. A few require investment minimums, meaning you must fund the account with at least $50, $100, or so on to start trading.

  • The best brokers for beginners offer low fees, easy access, and educational content. New investors should look for the following:

    • Free stock and ETF trading
    • Zero account minimums
    • Multiple investment types
    • Option to open cash or margin accounts
    • Investment research
    • Customer support
    • Educational resources

    It's simple to open a trading account, even for first-timers.