Everything you need to know about setting up your first brokerage account (2024)

If you want to start investing, but you're not sure where to begin, chances are you've spent some time Googling "how to set up a brokerage account."

So, what is a brokerage account anyway? And what's involved in opening one?

A brokerage account gives you access to the stock market, allowing you to buy and sell stocks, bonds, ETFs and mutual funds in an effort to build your wealth (while taking on risk).

Brokerage accounts are offered by the big financial firms like Charles Schwab and Fidelity, and also by online brokers like Ally Invest. Brokers essentially act as middlemen between you and your investments. They hold the money you use to purchase investments and can execute trades on your behalf. Many brokers also offer users full-service investment planning, from personalized advice to market intelligence.

Unlike a retirement account, like your 401(k) or IRA, you can access the money you invest in a brokerage account at anytime — you don't have to wait until you reach 65. But new investors should be aware that you may pay taxes on your earnings. When you sell a stock and want to withdraw your earnings, you can do so at any time, but come tax season you'll need to pay a taxes on the income or dividends you make. This is why brokerage accounts are often called "taxable accounts."

Here are the basics that everyone needs to know when opening your first brokerage account.

You don't need much time or money to open and fund a brokerage account. Opening a new account online can take around 15 minutes. Typically, you'll fill out an online form providing information on your employment, net worth, investable assets, investment goals, as well as your basic information like your driver's license and Social Security number.

To fund your account, you'll need to transfer money from a linked bank account, such as your checking or savings. You may also be able to wire transfer money, deposit a check or transfer investments from another broker.

The broker may ask if you want a cash account or margin account. A margin account acts almost like a loan where the broker lends you money to make trades, and you pay interest, while a cash account means you fund your account with your own money.

Investors can have as many brokerage accounts as they want, and there is no limit to how much money you can deposit into your taxable brokerage account each year.

Pay attention to the fees when opening a brokerage account. Brokers get compensated through commissions, although many now offer commission-free trading for trading stocks. Brokers offering free stock trading include TD Ameritrade, E*TRADE and Vanguard. But often times you'll be charged for other things like management and advisory fees. Make sure to also note any costs associated with trading outside of stocks, such as mutual funds, ETFs, bonds and options.

Most brokers don't have minimum deposit requirements for opening an account. You may, however, have to reach a minimum to make investments, such as purchasing a minimum dollar amount of shares to invest in an index fund.

If you're overwhelmed by the idea of investing, consider a robo-advisor platform instead. Investing on your own through a brokerage firm requires you to know at least the basics of how to choose the right stocks, bonds or funds. With a robo-advisor, you can get a well-diversified portfolio thanks to algorithms that consider the best investments based on your financial goals.

SoFi Invest®, for example, offers automating investing, and you don't need to reach a minimum deposit or maintain a certain balance. SoFi also stands out for allowing you to also participate in company IPOs at no minimum cost.

If you like the idea of a robo-advisor but would feel more comfortable knowing there's a real-life financial advisor you can talk to when you need to, considerBetterment. Enrolling in Betterment's premium plan gets you unlimited access to a financial advisor. If you aren't a premium member, one-time advisor consultation fees range from $199 to $299.

Setting up your first brokerage account is an exciting step in your investing journey. You can really start to build your wealth by putting your money in the market where it grows in part thanks to compound interest.

But before you dive into investing, you'll want to consider your overall financial picture. Make sure your debt is under control (especially high-interest credit card debt), you're investing in a retirement account (and meeting any employer 401(k) match), you have an emergency savings account and — this is crucial — you understand the risks and still feel comfortable investing.

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