In this video about how to buy stocks for beginners, we will discuss how to open a trading account. Before you start a trading account, you should have a minimum of a 6 month cash reserve set aside as an emergency fund. There is nothing worse than being in a down market and being forced to sell for personal reasons. Trust me, I have been there. This should be enough to cover all of your living expenses over the next 6 months.
How To Buy Stocks For Beginners:
If you are looking to trade stocks and ETF’s you need a brokerage account. Online discount brokers are a good option for beginners. Popular choices are Fidelity, Charles Schwab, TD Ameritrade, Etrade and Scottrade. Each broker offers different perks, do your research and see which one best suits your needs. Remember, if you are planning on carrying a low cash balance make sure you won’t get clipped with a maintenance fee.
How To Open A Trading Account:
1. Establish a 6 month cash reserve.
2. Research and decide on a stock broker.
3. Open a trading account. You will need to provide proof of identification when you do this. They may ask for SSN/Tax ID, driver’s license or passport information, employment status, annual income, net worth and investment objectives.
4. Transfer funds from an existing bank account. Your broker may also allow you to mail in a check or wire funds via western union.
5. Familiarize yourself with the market order types offered by your broker.
6. Familiarize yourself with the trading platform.
Cash Account vs. Margin Account
A cash account is what the majority of investors are looking for. With a cash account, you pay for securities in full at the time of purchase. A margin account is completely different. If you open a margin account, your stock broker has the ability to loan you money. Interest is paid on this money if it is used.
If you decide to open a margin account, you need to be familiar with a margin call. This is where a broker firm can require you to deposit cash or they can sell ANY securities in your trading account to cover a loss. Familiarize yourself with the brokers policy on this.
Your stock broker may offer an option to invest your cash balance in a cash management system or a cash sweep. This can allow you to earn a small interest rate or dividend on your uninvesed cash.
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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. I am merely sharing my opinion with no guarantee of gains or losses on investments.
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