How Do I Open a Brokerage Account and Where Is It Best to Start Investing?

A brokerage and/or a personal (nonretirement) investment account (PIA) is a modern instrument that allows passive profits even for novice investors who are not familiar with the stock market and all the intricacies of trading. 

How do I properly open a brokerage account? Where is it possible to do it legally and safely? What is the minimum amount that will bring profit?

Here are the quick answers:

• It would be best if you used the services of experienced financial agents, including experts of our portal.
• Legal entities with a broker’s license accept any currency (more often dollars and euro). If you wish to make profits, it is better to have a sufficient amount in your account.
• When opening a brokerage account with a law firm or a bank, you should consider the fees applied. 

According to the opinion of experienced financial consultants, in order to receive a tangible income, it is better to invest at least 2,500 US dollars via a brokerage account.

Brokerage Account vs. Personal (Non-Retirement) Investment Account

So, what account should one choose, a brokerage account or a PIA? The difference between these accounts is in terms of duration and taxes.

What Is a Brokerage Account?

Brokerage account is an account that is opened with a brokerage law firm or a bank with an appropriate license. The main purpose of such an account is to buy and hold investments, including stocks, bonds, securities of exchange-traded funds (ETFs) and mutual funds. All investment assets are purchased, sold and kept by a broker on behalf of their client.

Brokerage account has its advantages:

• No restrictions on the amount of investment.
• Natural persons have the right to open several brokerage accounts with different licensed companies, including foreign ones.
• Money can be withdrawn from the brokerage account at any time.
• This income is taxable.

Brokerage accounts are recommended for first-time investors and those who would like to make a profit here and now. These are short-term investments that allow you to gain good experience and become a major investor in the future.

What Is a PIA?

Personal (Non-Retirement) Investment Account (PIA) is also a brokerage account, yet it is intended for the long-term keeping of securities. 

Margin Account When Opening a Brokerage Account

Brokerage accounts are of two types, cash account and margin account. What are the differences? What are the advantages?

1. Regular cash brokerage accounts are used to invest the investor’s personal financial assets.
2. Margin accounts use money borrowed from a broker. This will allow you to buy stocks and other securities on credit for more sophisticated investment strategies. In this case, buying on margin provides a return of interest on the loan, and the investment is collateral for the margin account.

Inexperienced investors are not recommended to use margin accounts when opening a brokerage account for this could lead to significant losses instead of the expected high profits.

What Is a Custodial Account ?

When a brokerage account is opened with a licensed legal entity, a custodial account is created automatically. What is it and why is it required?

1. A custodial account is used to hold already purchased securities.
2. Depository is a licensed legal entity that provides the services of record-keeping and the transfer of rights to securities. Less frequently, a depository may hold certificates of securities.
3. After the purchase of any stock, bond, etc. the security goes into a custodial account and the depository registers the owner.

The depository may be the same legal entity as the broker or another one. Separating the custody and brokerage accounts is a more reliable strategy, especially in the event of bankruptcy or other issues the broker might have. This will keep your securities safe from the consequences, and if the law firm goes bankrupt/closed, the investor only has to change their broker and continue owning their custodial account.

How Much Does It Cost to Open a Brokerage Account?

Every broker determines the rates for their services. But even if you are offered to open a brokerage account free of charge, you should not believe it. There are always hidden fees, including: 

• fees for not using the account;
• transaction fees;
• depository commission fees;
• stock exchange commission fee.

All of this can add up to a tidy sum. This should be taken into account.  A comparative analysis of several brokers/depositories should be conducted.

What Is the Right Way to Open a Brokerage Account? Choose the Right Broker

When choosing a broker to open an account, one should consider several important points:

• The broker must have a broker’s license that is their main document of title.
• The broker’s reliability rating should be listed on the official website of the legal entity.
• Rates including commission fees.
• Requirements for the minimum amount of investment.
• Access to foreign securities.
• The technology used, including the speed of the application and the website.
• Knowledge base. A good broker offers free educational instruments and tips for beginners planning to open a brokerage account.
• Technical resources and the support response time are also important. This also includes advice on the selection of securities.
• Proximity of the branch and the registered/actual address of the broker that you can visit and get additional help.
• Convenience of working with the brokerage account and its opening, including remote services with the online client identification.

It is important to take into account not only the choice of a broker for opening your account, but also the asset diversification This can be several custody accounts, several brokers, a reliable PIA, a foreign bank account to keep there the profits made, or even a ready-made investment instrument that does not require your participation in it, which is a trust.

What Is the Right Way to Apply for Opening a Brokerage Account?

If you chose a legal entity to manage and hold your investments, all that remains is to apply for opening a brokerage account. Here are the main documents required open a brokerage account:

• passport;
• tax number;
• application;
• Letter of Attorney if the account is opened by a third party.

Proof of origin of financial assets, social security number, employer information, and home address may also be required.

Where Is It Best to Open a Brokerage Account?

If your goal as an investor is to diversify your portfolio thanks to the large foreign companies, you can invest in ETFs in the U.S., Germany, and China.

If you want to become a qualified global investor and buy securities on any stock exchanges, it would be best to open a brokerage account with a licensed legal entity (broker). This will provide you a wide range of possibilities, both in terms of currency and investment products.

Foreign Brokerage Account – Pros

1. Insurance. Investors in the U.S. and European financial markets are insured against bankruptcy and force majeure situations. For example, in the United States brokers are supervised by the SEC, the financial markets regulator FINRA and SIPC which is an NGO. The insurance coverage may reach 500,000 USD. 
2. High profits thanks to a good choice of investment products and currencies.
3. Wide range of investment instruments. Brokers offer their investors an opportunity to invest money in securities of any stock exchanges in different countries.
4. IPO and offers of legal entities. Through the broker, the investor has the right to participate in IPO and corporate offers.

Foreign Brokerage Account – Cons

1. Taxes on income received from the stock market. When you open an account with a broker, you have to file your tax returns and pay taxes on your income.
2. Additional commissions charged by the brokers. This refers not only to the rates, but also to the minimum amount that will cover current expenses and allow purchasing of the securities with profit. Here it is important to understand that many brokers are trying to attract as much investment as possible, offering lower commissions as the portfolio amount increases. 
3. Additional fees for transfers between banks.

When opening a brokerage account, be prepared for many questions to be asked by managers, as well as in-depth verification of your identity as an investor carried out by the broker.

Brokerage Account – Summary

Your choice of broker and country of the brokerage account depends on your investment goals. Anyway, the assistance of experienced lawyers and consultants in the field of banking, taxes, and corporate products will come in handy.

The easiest and the safest way to open a brokerage account with a foreign legal entity is to contact the experts of our portal. 

Should you wish to open a brokerage account, the Offshore Pro Group experts will be happy to offer their professional assistance. Sign up for a free consultation or feel free to contact us.