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Brokerage Account: How to Open A Step-by-Step Guide

A brokerage account is an investment account used to buy and sell securities such as stocks, bonds, mutual funds, and ETFs. You can open a brokerage account with a number of licensed brokerage firms—from more expensive, full-service stockbrokers to low-fee online discount brokers.

You can deposit and withdraw money from your account just like a bank account, but unlike a bank, a brokerage account gives you access to the stock market and other investments.

You'll also see brokerage accounts, which are called taxable accounts because investment income in brokerage accounts is taxed as capital gains. This is compared to retirement accounts such as IRAs, which have different tax and payment rules and may be better suited for retirement and investing.

Delyanne Barros, founder of Delyanne The Money Coach, said: "A lot of people think brokerage accounts are 'no tax benefits,' but they do."

"The benefit of a brokerage account is to take advantage of long-term capital gains taxes," she said in an email interview. “To do this, you have to be a long-term investor. That means you need to hold the investment for more than a year. Not only will this help you get into the best tax bracket, but it may lead to better returns ."

The key to earning brokerage account gains is to stay invested, ignore the daily stock market noise and "live your life," Barros said.

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How does a brokerage account work?

Many brokerages allow you to open a brokerage account online quickly, and you generally don't need a lot of money to do it - in fact, many brokerages allow you to open an account without an initial deposit. However, you must fund the account before purchasing any assets. You can do this by transferring money from your checking or savings account or other brokerage account.

You own the funds and assets in your brokerage account and you can sell your assets at any time. A broker manages your account and acts as an intermediary between you and the investments you wish to buy.

There is no limit to the number of brokerage accounts you can have each year or the amount you can deposit into a taxable brokerage account. There should be no fees for opening a brokerage account.

How to choose a brokerage account provider

There are two main options that will meet the needs of most investors: online brokers and robo-advisors. Both offer retirement accounts and taxable brokerage accounts.

"You should be careful with which firm you open a brokerage account with," says Wendy Moyers, a board-certified financial planner with Chevy Chase Trust in Bethesda, Maryland. "And you should know what you're going to invest in. You should do a little research."

Online Brokerage Account

If you want to buy and manage your own investments, a brokerage account with an online broker is for you.

An investment account with an online brokerage firm allows you to buy and sell investments through the brokerage's website. Discount brokers offer a range of investments, including stocks, mutual funds, and bonds.