are usually required to verify your identity and residency.
Once you have completed your registration, it normally takes another day or so for your account to be verified, although at some brokers this process can take up to three days or even more. Some locally-focused brokers may even require overseas clients to send documents by mail, making the process more cumbersome. But once your account is verified, you’re all set to start investing!
Many brokers offer several account types to choose from, such as individual or joint accounts, or various tax-free savings accounts. As a stock investor, you’ll be especially interested in the latter.
If you’re planning to invest in stocks in order to save for retirement, an Individual Retirement Account (IRA) may be ideal for you. IRAs are tax-deductible or tax-free retirement accounts available for any US citizen with an earned income. There are various types of IRAs. Some allow you to deduct contributions to the account from your taxes; others don’t, but instead offer tax-free payouts once you reach retirement; still others cater to self-employed persons or business owners. Click here for a more detailed explanation of IRAs. Sounds like just what you need? Then make sure you choose a broker that offers IRAs.
Those thinking in the short term or willing to take more risk may consider opening a margin account. A margin account will allow you to trade with leverage, meaning that you borrow money from your broker to trade. This can amplify your gains, but also your losses! While a regular brokerage account (also referred to as a cash account) often involves no minimum deposit, opening a margin account requires a minimum deposit of $2,000. To learn more about margin trading and its potential risks, read this article.
If you are looking at an even shorter horizon and planning to engage in day trading (i.e. buying and selling a stock within the same day), please note that US regulations on so-called pattern day trading stipulate that you must have an equity balance of at least $25,000 in your margin account.
3. Fund your account
So your trading account has been verified; the next step is to fund it – in other words, to deposit money that you will then use for buying stocks. Some brokers require a minimum deposit when you open your account, but most brokers do not have such a requirement, allowing you to take your time before committing any funds.
All brokers will allow you to deposit or withdraw funds via bank transfer; an easy, usually free, though not always super-fast method. Withdrawing money to your bank account can take as long as three days.
Many brokers also let you deposit (though not withdraw) funds using credit or debit cards. A few will also accept so-called electronic wallets such as PayPal, Apple Pay, Skrill or Neteller. The biggest benefit of cards and e-wallets is that transactions take place instantly, allowing you to start investing – or reap the proceeds of a successful stock sale – right away.
4. Find and buy stocks
You may already know which stock(s) you want to buy; if not, it’s worth checking out the research section of your broker, which often includes trading ideas and recommendations by in-house experts or third-party analysts. Alternatively, you can do a bit of research on your own, and check the selected stock’s earnings multiples, or read up on industry news.
Once you have settled on a stock, it’s easy – just
