NEW YORK (TheStreet) -- There are lots of brokerage firms out there. Each of them will likely tell you that they can offer more for your investing dollar than any of their competitors can. But when you get right down to it and you're ready to start investing, what should you look for in a broker and what do you need to do to get set up?
One of the first questions you'll want to ask yourself when you start your search for a broker is, "Which brokers will let me open an account?" Some brokers have restrictions that limit who will be able to open an account with them. These restrictions usually boil down to age and money.
If you're young and interested in investing, keep in mind that in order to open your own brokerage account, you'll need to be a legal adult (usually 18 years old). If you're not considered a legal adult yet, you can still invest, but your parents will need to set up a custodial account with your broker.
A custodial account is essentially an account set up for a minor where the parents bear the legal responsibilities on behalf of the minor. With a custodial account, you'll still be able to trade stocks just as you would with your own account, except that Mom's and Dad's names will be on the account as well.
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Another thing you'll have to think about is the minimum account balance required by your broker. Most brokers require a minimum account balance for the same reason that banks do: They make money by lending your cash out to other customers in exchange for interest. Because it's expensive for a broker to maintain your account, they have to be sure that you're bringing in enough incremental revenue to cover the expenses of having you as a customer. As points of reference, minimum balances for online discount brokers are usually between $500 and $1,000.
Know Your Broker
Deciding whether or not a broker meets your needs is just as important as figuring out if you meet the broker's criteria for doing business. Important things you'll want to know about a broker:
- Can you walk into the broker's office and get one-on-one help?
- Does the broker even know what they're doing?
- How can you get money into your account?
These days, online discount brokers have become pretty universal in their acceptance -- they're convenient, their fees are lower, and you can get your information instantly. But for some people, being able to walk into a real office and talk to a real person is a big deal. If that's the case for you, then a traditional "brick-and-mortar" or full-service broker might be worth looking at.
Remember, though, fees are usually much higher with full-service brokers, and unless your account has a pretty impressive balance, you probably won't be getting a whole lot of face time with your broker.
Never fear, even discount brokers are now touting their hundreds of office locations and approachable brokers -- a sign of the ever-shrinking customer service gap between the full-service brokers and the discount ones. However, even with a discount broker, expect to be charged considerably more for taking advantage of those broker-assisted trades.
Make sure to look into professional affiliations. For stockbrokers, the independent governing body was the National Association of Securities Dealers, which became part of FINRA in 2007. You can find a wealth of information on your broker at the FINRA Web site.
Funding Your Account.
You'll likely need a checking account to get money into your brokerage account. While cutting a check has been the method of choice for quite some time, paperless methods like electronic funds transfer are becoming an industry standard for getting cash into your account. For your opening deposit, they'll likely still need a check. (Sorry, folks, no credit cards accepted here.)
Now, you've likely heard of a margin account. It's essentially a way for you to borrow money (or securities) from your broker to invest. Buying on margin is not something that you'll want to do until you're pretty familiar with investing and understand the additional account restrictions related to margin (like a higher minimum balance).