Opening a brokerage account is just about essential to investing in stocks. A broker is someone who buys and sells on your behalf, licensed by FINRA (Financial Industry Regulatory Authority). Some of the more popular brokerages are TradeKing, ScottTrade, TD Ameritrade and ETrade amongst a number of others.
In this short tutorial I will help you understand who qualifies to open an account because believe it or not, many people cannot open an account. I will also explain how long it takes because it should be almost instant. You will also need some personal information and paperwork handy. Finally, I will touch on account minimums and how to fund them.
If you want to skip ahead of the details and just open your account I recommend you open an account with TD Ameritrade now. It’s free to open, requires no minimum balance, and offer some of the cheapest commissions. Some are even commission-free!
Am I allowed to Open an Online Brokerage Account?
Apply to a Brokerage in your Home Country
Most individuals will qualify to open a brokerage account so long as they are are a permanent resident or citizen of the country in which the brokerage is based. You will first have to find a brokerage in your country. Some of the big names like I mentioned above will allow certain circumstances, like a U.S. citizen who is a resident elsewhere, but this is very rare. Most are very strict about doing business exclusively in the United States. In fact, many of the international options are restricted to a very few countries.
If you have a valid social security number in the United States, even if you are not a citizen you will likely be able to open an account.
There are Age Restrictions
If you wish to open an individual account with a brokerage firm, according to current U.S. law you must be 18 years of age or older. Most other countries have similar laws. If you are under 18 you can wait or you can elect to open a custodian account which will allow someone of age to open the account with you, which can be passed onto you once you are of age. Best to work with a parent, relative or guardian. Your account is much more likely to be approved.
Do I have to Be Employed or Have a Minimum Net Worth?
When you go through the process of opening an account you will be asked whether or not you are employed and what kind of employment, part-time, full-time or self-employed. Your answer should be honest as it is used for tax purposes. I have never heard of anyone being denied the opportunity to open an account by being unemployed or underemployed. After all, there are a number of people who make a living trading stocks, yet they are statistically considered unemployed.
Likewise, when they ask you how much you earn per year, be fair and honest. It is required by federal law to acquire this information. Lying on it could get you in a lot of trouble. Again, I have never heard of anyone being denied the opportunity to open an account based on income. In fact, when I opened my first account at 18, I was an unemployed student with less than $10,000 in income a year. My application was accepted that day.
How Long Does it Take to Open a Brokerage Account Online?
Opening a brokerage account usually takes less than 10 minutes. It can take longer if you intend to read all of the fine print, which I recommend, but I know most people will not do.
Here’s what you will do to open your account:
- First, you will be choosing a username and password
- Next, you will have to choose which type of account you want to open – most people will want to open an individual or IRA account
- After that you will fill in all of the personal information – this includes your address, phone number, net worth and social security number for tax purposes.
- Upon completion you will receive a confirmation email to let you know your application has been received.
- Finally, you will get an email telling you your account has been approved. This usually takes an hour or less but if you apply on weekends or you entered incorrect information it could take several days.
What Personal Information Do I Need to Open my Account?
- Name, Address, Phone Number, Working Email – Basic contact information
- Social Security Number – This helps verify your status and is used for tax purposes
- Employment Status and Annual Income – Nothing too specific, estimates are usually fine – just don’t embellish
Once Approved How Do I Fund My Brokerage Account?
Many brokerages will require you to fund the account immediately or within a set number of days through personal check or wire transfer. They will not accept Paypal or credit cards. It might seem old fashioned but this is part of federal law and helps regulate trading.
There are a number of accounts that require no minimum balance to open. The one that I recommend is TD Ameritrade. I opened both accounts many years back with zero funds and added money to them from my checking account over time.
If you do not choose a brokerage like TD Ameritrade you will likely need to come up with $500 to $1,500 upon opening. Almost all online brokerages will offer a discount on trades or free cash in your account if you open with a certain dollar amount.