You open a brokerage account with a financial company that connects you to stock exchanges

A brokerage account is the container you need to hold stocks. You cannot buy stocks directly from a company or exchange yourself — you need an intermediary. That intermediary is a brokerage firm, and they charge you to execute trades, hold your money, and keep records.

The brokerage you choose matters because it affects what you pay in fees, what tools you see to research stocks, and how quickly you can trade. Some brokerages are designed for people making their first investment. Others cater to active traders or people managing large portfolios. Most people start with one of the major online brokerages because they have low or zero trading fees and straightforward interfaces.

Opening an account takes 10 to 20 minutes online. You will need a Social Security number, proof of identity, and a bank account to fund it. The brokerage will verify your identity electronically and ask basic questions about your investment experience and financial situation.

Key Takeaways

  • You must open a brokerage account with a licensed financial company; you cannot buy stocks directly from a company or exchange.
  • Major online brokerages like Fidelity, Charles Schwab, E*TRADE, and TD Ameritrade offer zero-commission stock trades and are designed for beginners.
  • Opening an account requires your Social Security number, a government ID, and a bank account to deposit money.
  • Different brokerages charge different fees for things beyond stock trades, such as account maintenance, wire transfers, or research tools.
  • You can open multiple accounts at different brokerages, but you will need to track them separately and file taxes on gains from each one.

How major online brokerages differ

The largest brokerages — Fidelity, Charles Schwab, E*TRADE, TD Ameritrade, and Webull — all offer commission-free stock trades, meaning you do not pay per trade. They differ in account minimums, research tools, customer service, and mobile app design.

Fidelity has no account minimum and offers extensive research through its website and app. Charles Schwab also has no minimum and is known for strong customer service by phone. E*TRADE and TD Ameritrade have more advanced trading tools if you plan to trade frequently. Webull charges no commissions and has a simple interface but offers fewer research resources than the others.

Smaller brokerages and robo-advisors like Betterment or Wealthfront automate stock selection based on your goals and risk tolerance, which can be useful if you do not want to pick individual stocks. They typically charge a small annual fee (around 0.25% of your account balance) instead of per-trade commissions.

What you need to fund your account

After you open the account, you transfer money from your bank account to your brokerage account. This is called funding the account. Most brokerages let you link your bank account electronically and transfer money in one to three business days.

Some brokerages offer a debit card or check-writing privileges on your brokerage account, which means you can move money back out without waiting. Others require you to initiate a transfer request each time you want to move cash back to your bank.

You do not need a large amount to start. Most brokerages have no minimum deposit. You can open an account and deposit $100, $500, or whatever you can afford. The only limit is that if you buy and sell stocks within five business days (called a "day trade"), you need at least $25,000 in the account to avoid restrictions.

Types of accounts and tax treatment

A standard brokerage account (called a taxable account) has no contribution limits and no restrictions on when you withdraw money. You pay taxes on dividends and capital gains each year, whether or not you sell the stocks.

A retirement account — such as an IRA or 401(k) — offers tax advantages but restricts when you can withdraw money without penalty. An IRA lets you contribute up to $7,000 per year (as of 2024, though this amount changes). A 401(k) is offered through an employer and has higher contribution limits. Most brokerages let you open an IRA directly, but a 401(k) is set up through your employer's plan.

If you are under 18, you cannot open an account in your own name. A parent or guardian can open a custodial account in your name, and you gain control of it at age 18 or 21 depending on your state.

How to move money between accounts

If you already have stocks at one brokerage and want to move them to another, you can do an account transfer (also called an ACAT transfer). The receiving brokerage handles most of the paperwork, and the transfer usually takes five to seven business days. You do not sell the stocks during the transfer — they move as-is to the new account.

If you want to move only cash, you can withdraw it from one brokerage and deposit it at another. This is faster but means you are out of the market during the transfer, which can cost you if prices rise.

Some brokerages charge a fee to receive a transfer from another firm, typically $0 to $50. A few waive the fee if you transfer a large enough balance. Check the receiving brokerage's transfer policy before you move accounts.

What happens after you fund your account

Once money is in your brokerage account, you can buy stocks immediately. You search for a stock by its ticker symbol (a one- to five-letter code like AAPL for Apple or MSFT for Microsoft), enter the number of shares you want, and confirm the order. The trade executes during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays when the market is open).

Your brokerage holds the stocks in your account and sends you a statement each month showing what you own, what it is worth, and any dividends or interest earned. You can sell stocks anytime during market hours by the same process — search, enter quantity, confirm.

The brokerage reports your gains and losses to the IRS each year on a form called a 1099, and you report them on your tax return. If you hold stocks for more than one year before selling, you pay long-term capital gains tax, which is usually lower than short-term rates.

Fees beyond commissions

Most brokerages charge zero commission per trade, but they may charge other fees. Common ones include wire transfer fees ($15 to $30 to move money out), account maintenance fees (rare now, but some charge $0 to $100 per year), and inactivity fees if you do not trade for a long time.

Some brokerages charge for premium research tools or data feeds. Others offer these free to all customers. If you plan to trade options or futures, some brokerages charge per contract. Check the fee schedule on the brokerage website before you open an account.

Robo-advisors and managed accounts charge an annual percentage fee (typically 0.25% to 1% of your balance per year) instead of per-trade commissions. This can be cheaper if you trade frequently, or more expensive if you buy and hold for years.

Frequently Asked Questions

Can I open accounts at multiple brokerages?

Yes. You can open accounts at as many brokerages as you want. Some people keep accounts at two or three to diversify where their money sits or to use different tools at each one. You will need to track each account separately for taxes and monitor them individually.

What is the difference between a brokerage and a bank?

A bank holds your cash and offers checking and savings accounts. A brokerage buys and sells stocks and other investments on your behalf. Some large financial companies (like Fidelity or Charles Schwab) operate both a bank and a brokerage, but they are separate divisions with separate accounts.

Do I need to pick individual stocks, or can I buy funds instead?

You can buy either. Most brokerages let you buy individual stocks, mutual funds, and exchange-traded funds (ETFs) all in the same account. Many beginners start with ETFs or mutual funds because they own dozens or hundreds of stocks in one purchase, which spreads risk more than picking single stocks.

What if I want to invest but do not want to pick stocks myself?

A robo-advisor like Betterment, Wealthfront, or Vanguard Personal Advisor Services builds a portfolio for you based on your goals and risk tolerance, then rebalances it automatically. You answer a questionnaire, fund the account, and the service handles stock selection and trading. You pay an annual fee instead of per-trade commissions.

How long does it take to start trading after I open an account?

You can usually trade the same day you open the account if you fund it with a wire transfer (which costs $10 to $30 and takes a few hours). If you link your bank account and do an electronic transfer, it typically takes one to three business days for the money to settle before you can trade.