People who want to invest in the financial markets need to open a trading account, because without this type of account it is not possible to do anything. The term trading account means an account with a broker that enables an individual or other party to buy and sell stocks, bonds, derivatives or other investment vehicles.
The process of opening a trading account is fast and simple, but choosing the best trading account isn’t as simple for most of the people, because there are many types of trading accounts designed for different financial circumstances. Let’s take a look at the most important information you need to know before opening a trading account.
The different types of trading accounts
There are many types of trading accounts in the market. They have different features and each of these features affects the costs and the benefits. These are some of the main types of trading accounts:
- Demo trading accounts. They are designed to offer an opportunity for traders to test out the different platforms and the different types of account options with no risk involved and with no costs.
- Standard trading accounts. They are adequate for most of the small retail investors and enable to buy and sell most of the securities. There are zero costs to open, maintain and close this type of account.
- Professional trading accounts. They are designed for more experienced clients who want to trade more securities, to have access in more financial markets, but also other benefits.
- VIP trading accounts. They offer better trading conditions and the highest standard of service with a dedicated manager. This account type is tailored for clients aiming to have the comfort to trade in the financial markets.
- Other types of trading accounts.
Trading accounts fees and costs
There are various different fees and costs that a trader may incur while using the trading account. The main fees and charges of a trading account are:
- Brokerage fee. It is charged by the broker and may include annual fees to maintain the trading account, subscriptions for premium research or investing data, fees to access trading platforms or even inactivity fees for infrequent trading.
- Trade commission. It is charged when the trader buys or sells stocks, bonds, derivatives or other investments vehicles.
- Sales load. It is a sales charge or commission on some mutual funds, paid to the broker or salesperson who sold the fund.
- Management or advisory fee. It is typically a percentage of assets under management, paid by an investor to a financial advisor or robot advisor.
These are the main fees and costs of a trading account, but some brokers can charge other fees.
Documents required to open a trading account
There are necessary different documents to open a trading account. The list of the documents depends on your unique situation and on the type of trading account you are going to open. Collecting these documents beforehand, can help you speed up the process and get to the closing table sooner. Here’s what you can expect to need when you are going to open a trading account:
- Photo ID, such as a passport, identity card or driver’s license.
- Proof of address, such as a telephone bill or utility bill.
- Proof of income, such as a bank statement, a copy of Income Tax Return or other documents.
- Proof of a corresponding bank account.
These could not be the only documents required to open a trading account, so you need to be ready to provide all the documents the broker needs.
Choosing a trading account that is right for you
Choosing the best trading account is not a simple problem, but it’s vital for your trading activity that you make the right choice and don’t get overwhelmed by the options. There are some basic things to consider and analyse before choosing the perfect trading account for you. Here’s the list of what you need to do before opening a trading account, so you can choose the trading account that is right for you:
- Understand trading account options and features.
- Understand trading account fees and costs.
- Understand documents required to open a trading account.
- Make a personal financial plan.
- Compare different trading accounts offers.
Remember, it’s always best to have as much information as possible, before you open a trading account.