We know about securities and the stock market but how does one trade in securities of the stock market? Well, it's through stockbrokers. Though everything is now traded online from the comfort of your offices and homes, historically Bombay Stock Exchange, synonymous with the name Dalal Street was an open floor outcry where all the trading was done through stockbrokers. The basic role of a stockbroker is to purchase or sell securities on behalf of the investor. But how do you carry out your transactions? It is through the medium of a brokerage account. Let us know more about the brokerage account in particular.
What is a brokerage account?
A brokerage account is one through which you can sell or purchase securities such as bonds, stocks, Mutual Funds, and so on. The working of a brokerage account is fairly simple. You can deposit money into your brokerage account just as you do in your bank accounts and use this money for your transactions in securities.
It's the account holder's choice whether he wants to invest in the short term profits or long term gains because the brokerage just serves as an intermediary between the account holder and the market and follows the investment instructions given by the person. Some brokerage accounts also give a decent return on the cash which is left to be invested.
There are a number of licensed brokerage firms in India- from low-fee online brokers such as Zerodha, Upstox to costly full-price brokers such as ICICI, HDFC. Yes, you got it right, some banks also provide brokerage services. These brokerage firms have a full-fledged Research & Analytics team that studies the movement of securities in the market to near-perfect Stock performance and every client needs the firm with the best predictions.
Therefore, for all the reasons stated, making an investment decision is just one part of the story, the other part is to choose the right broker to trust with your money who can make it grow. So what you need to look at when you choose the brokerage account for yourself?
Things to look in a brokerage account
1) Diverse Investment Options: To select any broker, you need to have an idea of your investment. Some typical investment options include individual stocks bonds, mutual funds, ETFs, etc. If one plans to invest in any of these options, finding the brokerage account that offers access to all these facilities is a must because every other account won’t provide you that facility.
2) Pocket-friendly Commission: You never want to spend an extra penny when it comes to trading and you must be wise to select the brokerage account where you can avail all facilities paying nominal fees. To keep you up-to-date, the best online brokers have even joined the zero commission movement eliminating commission.
3) Avoiding unnecessary fees: While many accounts provide the facility to go without any monthly or annual fees, there are a few who asks you for additional charges like:
• Inactivity Fees.
• Funds transfer fees.
• Annual Fees.
Be aware to select the ones without them.
4) Minimum Affordable Account: There are several brokerage accounts in the market which allow making your initial investments with a few bucks or some huge investment. Choose the ones who guarantee you the minimum to start but beware of the other factors as well.
5) Research and Educational Resources: Supposedly, you have two choices, one where you could just invest and the other which recommend you/suggest you/advise you and then you invest, the latter seems fancy right? Yes, that’s what you have to do while choosing your brokerage account. Ensure that it is convenient for you to search there instead of going anywhere else.
6) Accessibility: The thing which you never want is to have an account that couldn’t be accessed due to the software configuration of the device. It’s always better to check the usage of the account everywhere, (mobile or online) before finalizing and boiling it down to one.
7) Customer Services: The 24*7 customer care is all we witness at the first glance of any telecommunication service but does your brokerage account service company (broker) offers the same facility to you? Do you have to rush to different modes to get help? If yes, change or do not even open an account there. Check for the services and be an informed investor.
Is your money safe in brokerage money?
Now since you are planning to open a brokerage account, you must be well aware of the security it offers to you. All your cash and securities in a brokerage account are insured by the Securities Protection Corporation (SIPC).
It does not protect anyone from bad investment decisions or a loss in value of the investments but covers the custodial functions a brokerage: replacing a customer’s cash and assets if the firm goes bankrupt. So, therefore, you can get rest assured from your investment in a brokerage firm.
Since we now know what factors to consider before opening a brokerage account, what are the brokerage accounts and how safe is your investment, you can easily research and choose the ones which are the best for you. Taking the decision to invest is one of the best decisions of your life and no time is better than the one when you start your planning towards it.
In the end, a brokerage account is a key part of your financial plan as this market is one of the best ways to achieve long-term growth. But your money is your own and trust the ones with whom you can invest, so make decisions wisely.
S. Vishwa is a web marketing analyst at Finology Ventures. With 5+ years of web marketing experience, joined a Fintech company to help people to learn and earn more.