• Trading Account

    Not everyone knows the best way to go about opening and using a trading account, so let’s spend a few minutes going over some basics. A lot of this may seem obvious to you, but we’re not all as smart as you now, are we?

    It’s true that you can go to a discount broker and buy stock and pay the broker for that stock purchase and his fees for handling the transaction. You now own a certain amount of shares that you have paid for and you can opt to either have the shares in certificate form delivered to you, or you can have a digital representation of the certificates held by your broker. In any event, this might be a one-shot deal and you don’t need to have surplus funds deposited in a trading account, but we are discussing the need for a trading account.

    What Style of a Trading Account is Best for You?

    You’ve decided you want to be an active trader, and perhaps even trade online. Well, in order for you to trade, you have to place orders to buy or sell and a broker will have to be able to access an account in which your trading funds are deposited. How else is he going to receive his fees, right?

    • Different Trading Accounts For Different Activities

    A trading account is very similar to a regular bank account and, according to oversight rules, an investment dealer administers the account when there is activity. It’s common for active investors to have more than one trading account, and sometimes with more than one broker. Investors have different reasons to trade certain ways at certain times, and it’s a good idea to separate those different trading actions into different accounts.

    Determine Your Investment Objective and Open a Trading Account

    Maybe you have an account that is just for trading stocks and the funds in that account represent a “long-term” investment plan.

    You might have another account in which you only trade options, and that account is for day trading or very frequent activity.

    You could have an account that is your IRA and you have to separate that account. It’s treated in a special way.

    Maybe you have an account that is strictly for trading on margin.

    It makes sense to keep your trading funds organized and bookkeeping simple.

    • Choosing a Broker

    When you place a trade, regardless of the market in which you are trading, you must have a licensed broker place the trade on your behalf. The broker deducts from or deposits to your trading account depending on what the transaction was.  If your account runs low or you wish to make a withdrawal, the procedures are similar to the ones you follow at your bank. You’ll have to meet the funding requirements of the broker you choose.

    You’ll be required to complete an application with the broker and provide certain personal information, along with initial funds. Since your trading account is set up through your broker, you need to understand that there are all different “levels of service” provided by different types of brokers. Depending on your needs and desires you will have to decide what type broker best suits your financial requirements.

    You can set up your account with a full-service broker who will literally baby-sit you through your investment journey, but along with that are usually steep fees. More than likely all you need is a general broker who charges moderate fees and who is able to provide you the means to place and execute your trades in a secure manner. Some brokers can provide you with some seriously effective trading tools, such as trading software and analytical reports.

    Whatever type trading account you choose and whoever you choose for your broker, it’s important that you don’t solely rely on their information as the gospel when it comes to your statements and activity postings, along with confirmations of your trades. Look at your statements and keep your own records. It is unlikely that there will be a glitch, but it does happen. As you now see there are many different ways to open a trading account and hopefully you found this information helpful.

    © 2011, www.daytraderoptions.com. All rights reserved.

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