What is a Brokerage Account and How to Open One?

• By Rachel Snowden

Have you decided to start investing in securities? Opening a brokerage account is your first step. So, let's consider who brokers are, what a brokerage account is and how to open one.

Private investors cannot directly work in the stock market. To get on it, you need to contact a broker and open a brokerage account. The brokers are a professional stock market participants who are licensed to conduct brokerage activities.

The brokerage account is an account for performing various trading operations with various assets, such as stocks, bonds, options, futures, currencies, etc. You can transfer money to and from your brokerage account just like a bank account. The essential difference between a brokerage account and a bank account is that it provides access to the stock market.

You can open the brokerage account in a bank that serves you or in another bank, or in an investment company through a mobile application, through a website, or by contacting an office. To choose a broker, you should evaluate them according to different criteria: access to exchanges, tariffs, types of services provided, convenience of transactions. The brokers may charge a commission for their services. This can be a fixed amount for depository services or a certain percentage of the transaction amount.

After you have chosen a broker, you need to conclude a brokerage agreement and fund your brokerage account. If you want to manage your investments yourself, you can buy and sell securities through the broker's website or mobile app and make your own decisions. There are other options, such as trust management - your investments are managed by a professional financial consultant, or a robo-adviser is an automated financial adviser based on complex mathematical algorithms to select and manage your investments based on your preferences, goals and investment timing.

You also need to know that trading securities on the stock exchange through a broker can be carried out not only for your own money. You may be offered a margin account that allows you to trade with borrowed funds, but this is risky and you have to pay interest on using the funds. Therefore, it is better to trade with your own money first.

You can always withdraw money from your brokerage account, but if your goal is to build capital, you should, if possible, replenish your brokerage account and diversify:

• by sectors of the economy (for example, the IT-sector, Oil&Gas, Agriculture, etc.);
• by issuers (large companies, startups, government);
• by countries;
• by asset type (stocks, bonds, ETFs, precious metals, etc.).

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Many novice investors think that trading securities is risky and very difficult. In fact, there are risks, but it is not as difficult as it might seems at first glance, although there is something to learn and for a reason. Investing allows you to put your money in assets that are more likely to outpace inflation, and to build up your capital.