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How to Open a Brokerage Account

August 20, 2020 · 5 minute read

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How to Open a Brokerage Account

If you’re new to investing, you’re not alone. Only half of Americans actually invest in the stock market. But getting started is important: Investing could help you grow your money over time, which is key to building a nest egg, saving for long-term financial goals, and building wealth.

One of the most common ways that people invest is through a brokerage account. The name can sound intimidating, but when you break it down it doesn’t have to be. A brokerage account is an investment account that you open with a brokerage firm.

A brokerage firm acts as a middleman to connect buyers and sellers. After you put funds into the account, you can invest them in a variety of assets, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), money markets, and more.

There’s no guarantee how your investments will perform, but investing in stocks has historically yielded a 7% return in the long term, after accounting for inflation.

There’s no limit on how much you can deposit into a brokerage account (the average minimum deposit is usually between $500 and $2,500) and typically no restrictions on when you can take money out.

However, you may owe various taxes related to earnings in your account, such as capital gains and dividends.

Even though investing can be a smart decision, it’s worth thinking carefully about whether a brokerage account is right for you and what type you would want to open. You may be wondering, “How do you open a brokerage account?” Here’s a step-by-step breakdown of the process:

Deciding Whether a Brokerage Account is for You

Before jumping in, take some time to reflect on whether opening a brokerage account makes sense given your financial situation and priorities.

The first step is to evaluate your personal financial situation and confirm you are ready to invest. There are a variety of factors to consider, one of which is outstanding debt.

For example, it may be worth focusing on repaying credit card debt, since it could have higher interest rates than the potential returns earned from the stock market. It could also be worth saving an emergency fund in a checking, savings, or money-market account in case of unexpected expenses.

Before you jump in, it’s also worth determining some financial goals. Are you saving for a short-term event, such as an upcoming vacation or wedding?

For a medium-term goal, such as a down payment or renovating your home? Or for a long-term objective, such as retirement? The time horizon of each goal could influence the type of account you choose to open.

Figuring out What Kind of Account You Need

There are two kinds of brokerage accounts: a cash account and a margin account. A cash account requires you to pay for purchases entirely with funds that you deposit into the account ahead of time.

A margin account allows you to borrow from the brokerage firm, using your existing cash account as collateral, to buy securities and pay the loan back over time. You’d pay interest on the loan, and your stock shares would serve as collateral.

Going with a margin account comes with risks. If you purchase stocks using borrowed money and the value of the stocks you hold declines, the brokerage can make you deposit cash or stock immediately or sell some of your stock without telling you in advance, which is known as a “margin call.”

The brokerage firm decides which stock to sell and can change the threshold for a margin call at any time.
Using borrowed funds, which is known as “leverage,” is a very risky strategy as it magnifies your gains and losses compared to only purchasing stocks using cash you actually have.

Selecting a Broker

Brokers can work on their own or with a brokerage firm. When choosing a brokerage firm, you may want to consider the level of service you prefer and what fees you can afford. If you go with a full-service brokerage, you may work with an individual broker who is familiar with you and your financial situation.

This person would not only execute your trades but also work with you regularly to discuss your financial strategy and make sure your investments align with it. That level of service comes with a cost: Commissions for full-service brokers average $100 to $200 per trade. Some also charge maintenance and operating fees, inactivity fees, and minimum balance fees.

A discount broker usually offers services only online or perhaps in a small number of locations. Traditionally, you’re completely on your own with discount brokers when it comes to deciding on an investment strategy; virtually all they do is execute trades.

The price is therefore much cheaper at $5 to $15 per trade. A newer crop of online brokers still offer low-cost services, but provide a bit more guidance.

No matter which broker or firm you go with, consider checking their credentials and history online before opening an account.

You can do this by looking up the name of the individual and firm on FINRA Brokercheck or by calling (800) 289-9999. Make sure the phone numbers and addresses align to avoid falling prey to a scam.

How to Set Up a Brokerage Account

Once you’re ready to get started, you’ll need to complete an account application. You’ll likely be asked to provide your Social Security Number or another tax ID number, driver’s license or passport information, your employment status,financial details such as your annual income and net worth, and a trusted contact.

You may also be asked to specify your investment goals, such as “moderate,” “conservative,” or “speculative.” It’s important the broker understands your risk tolerance, so be clear about your goals and ask questions if there are terms you don’t understand.

Fund Your Account

Next, you’ll need to transfer cash into the account. Most brokerages allow you to make an electronic deposit from a bank account. You may even be able to set up automatic deposits if you’d like to continue investing on a regular basis.

Many brokerages will also allow you to send a check by mail. Make sure you research who you should make the check out to. Some brokerages will also allow you to fund your account with a wire transfer or by transferring stocks or other assets from an existing account with another firm.

Starting to Invest

The final step is choosing investments that align with your goals. The mix of stocks, bonds, and other assets you choose will depend on your goals and risk tolerance. If you’re working with a full-service broker, he or she can help you figure out what to select.

Many investors strive to achieve diversification in their portfolio, meaning their investments are spread across different sectors, geographies, and types of assets. The goal of diversification is to reduce the risk of all your holdings performing poorly at the same time.

You may also want to make sure you achieve the right balance in your portfolio, with the amount in stocks, bonds, real estate, and other assets matching your age, goals, and comfort with risk.

Why Invest With SoFi

If you’d like to jump into investing while cutting down on fees, consider opening an investment account with SoFi Invest®. The Active Investing platform allows you to trade stocks and ETFs without paying any management fees to SoFi. For a limited time, opening an account gives you the opportunity to win up to $1,000 in the stock of your choice. All you have to do is sign up, play the claw game, and find out how much you won.

Download the SoFi Invest app today.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
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3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Claw Promotion: For the full terms and conditions of SoFi’s Claw Promotion, click here. Probability of a customer receiving $1,000 is 0.028%.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.


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