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9 Things New Investors Should Know about Opening a Brokerage Account

Here’s what every new investor needs to know before opening a brokerage account.

By Adam Palasciano

Edited by Chris Kissell

Updated Dec. 17, 2024

For new investors, opening a brokerage account is a critical first step toward building wealth and getting ahead financially. But with so many options and details to consider, it can feel overwhelming.

Fortunately, these tips can guide you through the process so that you can start investing confidently and avoid any surprises along the way.

Here are nine important things every new investor should know about opening a brokerage account.

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What is a brokerage account?

A brokerage account is an account that allows you to buy and sell investments such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

Essentially, the account serves as a vehicle to access the stock market and other types of assets. Unlike retirement accounts, brokerage accounts do not provide the perk of tax-deferred growth. But they can offer more flexibility.

For example, there are no annual contribution limits with a brokerage account, and you might have a greater range of investment choices than you would find in a 401(k).

Most brokerage accounts allow you to trade online, and many also provide access to research, financial tools, and advisory services.

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Fees and rules vary, so shop around

Not all brokerage accounts are created equal. Different brokerages have varying fee structures, including transaction fees, account maintenance fees, and sometimes commissions for trades.

In addition, there may be other stipulations. Before choosing a brokerage, compare different platforms to see which offers the best combination of low fees, useful tools, and services.

Make sure to read the fine print so that you avoid wasting money on unnecessary costs.

Some brokerages have minimum balance requirements

Not all brokerage accounts are accessible unless you make a minimum initial investment. Some require a specific amount of money to open an account or to avoid ongoing maintenance fees. These minimums can vary depending on the brokerage.

For investors just getting started, it’s crucial to check if a brokerage account has these balance requirements. That way, you will know how much money you need to begin investing.

Get a free stock valued between $5 to $200

Secret: You don't need thousands of dollars to buy thousand-dollar stocks or create a diverse portfolio.

Robinhood offers a method of investing called “fractional shares.” On its own, one share of a single stock could cost a lot of money, making it difficult to diversify. Robinhood allows you to buy pieces of stock instead, so you have the option to build a diverse portfolio quickly.

Let’s say you want to invest $250, as an example.

With that amount, you could build a relatively diverse portfolio with an investment of $50 in a big tech stock, $50 in a retail stock, $50 in an energy stock, $50 in a manufacturing stock, and $50 in a bank.¹ This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice. To get stock reward, new customers need to sign up, get approved, and link their bank account. Stock rewards shares cannot be sold until 3 trading days after the reward is granted and the cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at <a href="https://robinhood.com/us/en/support/articles/open-account-pick-your-stock/">rbnhd.co/freestock</a>. Fractional shares are illiquid outside of Robinhood and are not transferable. Not all securities available through Robinhood are eligible for fractional share orders. For a complete explanation of conditions, restrictions and limitations associated with fractional shares, see the Fractional Shares section of our Customer Agreement. Robinhood Gold is offered through Robinhood Financial LLC and is a membership offering premium services available for a fee.

Even better news? Add a Robinhood Gold membership, and you’ll get access to 4.25% (as of 11/15/24) APY² Annual Percentage Yield. Rate valid as of April 12, 2024. To earn interest, a cash balance is needed. If you have a margin balance, there is no cash balance to earn interest. Interest rates for cash sweep and margin investing can change at any time. Fees may reduce interest earnings. on your uninvested cash³ Interest is earned on uninvested cash swept from your brokerage account to partner banks. Partner banks pay interest on your swept cash, minus any fees paid to Robinhood. As of Nov 15, 2023, the Annual Percentage Yield (APY) that you will receive is 1.5%, or 5% for Gold customers. The APY might change at any time at the partner banks' or Robinhood's discretion. Additionally, any fees Robinhood receives may vary and are subject to change. Neither Robinhood Financial LLC nor any of its affiliates are banks. All investments involve risk and loss of principal is possible. Robinhood Financial LLC (member SIPC), is a registered broker dealer. and the ability to buy and sell stocks 24 hours a day, 5 days a week.

Open and fund a Robinhood account and earn up to $200 in stock

Brokerage accounts can offer more flexibility than retirement plans

Unlike retirement accounts, brokerage accounts are not subject to the same rules regarding when you can withdraw money. You can access funds at any time, which makes them an attractive option for those looking for more liquidity.

Unlike retirement accounts, brokerage accounts do not have annual contribution limits. This added flexibility is particularly helpful if you are planning to use investments for near-term goals, like buying a home or funding education.

You will have to pay taxes on gains

When you make money on investments in a brokerage account and sell for a profit, the IRS will tax you on the capital gains. This is different from retirement accounts such as 401(k)s and IRAs, where taxes are often deferred until you withdraw the money.

Short-term capital gains — charged on investments held for one year or less — are typically taxed at a higher rate than long-term capital gains, which are charged on investments held for more than a year.

It's important to keep track of your transactions and understand how your investments will be taxed so that you can plan accordingly.

Opening a brokerage account is easy

Opening a brokerage account has never been easier. Many online brokerages allow you to sign up within minutes by filling out a simple application form.

You will need to provide some basic information — such as your Social Security number, income details, and employment information — but the process is generally straightforward.

Once approved, you can fund the account and start investing. Some brokerages may even offer step-by-step guides and educational resources to help new investors get started.

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You can buy and sell online

One of the biggest benefits of having a brokerage account is the ability to trade online. Most modern brokerage accounts come with user-friendly platforms where you can research, buy, and sell stocks, ETFs, and other investments with just a few clicks.

This convenience makes it easy to monitor your portfolio and make adjustments as needed. Whether you are buying stocks or selling shares, the online trading feature allows you to have control over investments from your own computer or smartphone.

Robo-advisor platforms might offer extra help

If you are new to investing and unsure about managing a portfolio on your own, consider a robo-advisor. These automated platforms use algorithms that help you build and manage a diversified portfolio based on your risk tolerance and financial goals.

Robo-advisors typically come with lower fees than traditional financial advisors, making them an attractive option for beginners who want guidance without the high costs. Many brokerages offer robo-advisor options alongside traditional trading platforms, allowing you to get started even if you are not ready to make decisions on your own.

If you want 'human help,' consider a full-service brokerage

For those who prefer more personalized guidance, full-service brokerages such as Edward Jones, Fidelity, Morgan Stanley, and Vanguard provide access to professional financial advisors.

These advisors can help you build a comprehensive investment strategy, tailor your portfolio to your specific goals, and provide ongoing support. While full-service brokerages sometimes come with higher fees compared to discount or online brokers, they can be worth it for investors who want hands-on help.

Earn up to a $300 bonus and grow your money with up to 4.00% APY

This powerful combination checking + savings account from SoFi® allows you to earn up to a $300 bonus with direct deposit and grow your money with up to 4.00% APY.⁴ New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/2026. Full terms at <a href="http://sofi.com/banking">sofi.com/banking</a>. SoFi Checking and Savings is offered through SoFi Bank, N.A., Member FDIC. SoFi members with Direct Deposit can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the 4.00% APY for savings (including Vaults). Members without Direct Deposit will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of Dec. 3, 2024. There is no minimum balance requirement. Additional information can be found at <a href="http://www.sofi.com/legal/banking-rate-sheet">http://www.sofi.com/legal/banking-rate-sheet</a>

This is one of the top accounts we’ve seen, and offers like this can be rare. You work hard, and now it’s time to make your money work for you — with SoFi, you can grow your money with hardly any effort!

SoFi has no account or overdraft fees⁵ Overdraft Coverage is limited to $50 on debit card purchases only and is an account benefit available to customers with direct deposits of $1,000 or more during the current 30-day Evaluation Period as determined by SoFi Bank, N.A. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Members with a prior history of non-repayment of negative balances are ineligible for Overdraft Coverage. and additional FDIC insurance up to $2 million on deposits is available through a seamless network of participating banks.⁶ We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at <a href="http://sofi.com/legal/banking-fees/">sofi.com/legal/banking-fees/</a> ⁷ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/terms">SoFi.com/banking/fdic/terms</a> See list of participating banks at <a href="http://sofi.com/banking/fdic/receivingbanks">SoFi.com/banking/fdic/receivingbanks</a> Plus, you can receive your paycheck up to 2 days early.⁸ Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

How to earn up to $300: Sign up and make a direct deposit within the first 25 calendar days of the promotional period, then collect a $300 cash bonus with a direct deposit of $5,000 or more.

SoFi is a Member, FDIC. ⁷ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/terms">SoFi.com/banking/fdic/terms</a> See list of participating banks at <a href="http://sofi.com/banking/fdic/receivingbanks">SoFi.com/banking/fdic/receivingbanks</a>

Open your SoFi account and set up direct deposit

Bottom line

Opening a brokerage account is an essential first step for new investors, but there are a lot of factors to consider before diving in.

From understanding fees and tax implications to deciding between DIY trading and robo-advisors, the right choice will depend on your financial goals and preferences.

The most important thing is to start investing early and regularly so that you can take advantage of compound growth over time.

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