Home / Personal Finance / Choosing a Discount Broker
Using Your Account for the First Time
Opening an Account
Once you've appropriately researched your discount broker alternatives and decided on which one is right for you, you'll probably want to go ahead and open the account (rather than simply resting on your laurels for having done your homework).
Opening an account doesn't require much more than filling out an application. Don't worry about the title "application" -- we haven't heard of anybody getting turned down. Being approved to open a margin account (i.e., an account that permits you to borrow money from the broker) might be a problem if you have a horrible credit history. But opening an account that is funded entirely by your own cash is most likely going to be approved.
You can download the application forms, sign them, enclose them in an envelope with a check to fund your account, and receive confirmation of your ability to start trading in pretty short order.
The application will want you to choose between four types of accounts:
- Cash account:
This type of account asks you to deposit cash, and then you can use that cash to buy stocks, bonds, mutual funds, etc. Not much more complicated than that.
- Option account:
This type of account allows you to trade options, which is a much riskier business than stocks. In general, we counsel against trading options. Details about options, for those interested in learning more, are available by clicking here.
- Margin account:
The cash and securities in your account act as collateral for a line of credit that you take out from the brokerage in order to buy more stock. The amount that brokers charge, while below typical credit card rates, makes the return that you need to earn on your investments much higher than if you're only investing with your own cash. We generally counsel against using margin. Click here for the full story.
- IRA account:
Click here for absolutely everything about individual retirement accounts -- the differences between a Roth and a standard IRA, education IRAs, rolling over 401(k) accounts to a self-directed IRA, and more.
Transferring an Existing Account
You may already have an account that you'd like to transfer from a full-service broker or an offline bank. This is simple enough, and your new online broker will provide forms and procedures for making that transfer.
If you wish to transfer only part of your account -- that is to transfer some money from an existing account without closing it out completely -- contact your old broker to get a check cut for the portion of money you wish to withdraw. Don't let your old broker succeed in talking you out of taking control of your own money.
What Do You Need to Invest Online?
Access to a computer and the Internet. If you're at work during the hours that you're likely to place any orders, then having access to the Internet at work would be kind of useful. Of course, you can place orders while you're at home at night to be executed the next morning, so it isn't strictly necessary to have Internet access during market hours to use your account.
As long as you've got access to the Internet, you're pretty much covered.
Oh, you also need some cash in your account, so keep that in mind. And you need to know what to buy, so having familiarity with how to go about picking stocks would help. Most of this whole darn site is devoted to that very question, so if you haven't checked out any of our other material, and you're looking for a place to start, you might see the 13 Steps to Investing Foolishly and other related topics at the local Fool's School.
Placing an Order
In case you're thoroughly confused by all the types of orders you may have heard about, here's a quick guided tour.
- Market order: A customer order for immediate execution at the best price available when the order reaches the marketplace. The most common type of order, a market order has the advantage of nearly always being filled, since no price is specified.
- Limit order: An order to execute a transaction only at a specified price (the limit) or better. A limit order to buy would be at the limit or lower, and a limit order to sell would be at the limit or higher. Limit orders are used by investors who have decided on the price at which they are willing to trade.
- GTC (Good Till Canceled): An order either to buy or to sell a security that remains in effect until it is canceled by the customer or until it is executed by the broker.
- Fill-or-Kill: An order that is sent to the floor for immediate execution. If it cannot be filled immediately, it is automatically canceled.
- All or None (AON): A limit order either to buy or to sell a security in which the broker is directed to attempt to fill the entire amount of the order or none of it. An all-or-none order differs from a fill-or-kill order in that with an all-or-none order immediate execution is not required.
- Day Order: An order that terminates automatically at the end of the business day if it has not been filled.
- Stop Order: A market order that trades after a specified level has been reached. It may be time-limited as well, as with a day order or GTC order. A stop order guarantees execution but not price.
If you have additional questions about trading, peruse the website of the brokerages themselves, and check out the Foolish FAQs. If you still have questions after that, post them on the Ask a Foolish Question message board.
Next: Security in your online brokerage account »
 See Also
Discount Broker Discussion Board
Personal Finance
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