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How to Open an Online Broker Account
The purpose of this article is to educate you on how to open an online brokerage account. It lays out a 5 steps plan from a beginner’s point of view. But let’s first understand what an online brokerage account is and why you need it.
What is a Brokerage Account?
An online brokerage account provides the facility to trade in international financial markets. To open an account you need a broker. The Broker acts as a middleman and executes your trades on your behalf in the market. A brokerage account lets you trade thousands of products including Forex, stocks, commodities, indices, derivatives, bonds, and ETF’s.
5 Basic Steps for Opening a Brokerage Account
So for instance, to trade Forex, you will look for a suitable online broker and open an online trading account. Once your account is ready, you would be able to trade currencies using your broker’s online trading platform. However, the actual trading is not as easy as just opening an account. That is why this article lays out a 5 step plan for you to embark on a successful trading journey. So let’s start with the first step.
1. Educating Yourself
As a beginner, the first step before opening a brokerage account is to educate yourself. You should know how online trading works, what products you should trade, and how you can trade them.
Be Smart Take the Right Education
There are numerous sources of education but if you are just starting, you need to start with a basic understanding. First of all, make sure that you don’t react to the broker’s fancy advertisements. Such advertisements are usually the selling pitches and might put you on the wrong path.
Know the Products You want to Trade
So let’s say you want to open an online trading account to trade Forex. Since Forex is all about currency trading therefore you can first educate yourself about the currency pairs. A currency pair is a combination of two currencies. The actual quote determines the value of one currency against the other. There are hundreds of legally traded currency pairs in the Forex market. However, the majority of the trade takes place in 7 major currency pairs.
Learn the Core Concepts
Once you understand currency pairs you can move on to learning basic Forex terminologies. Some of the most important concepts and terminologies are the PIP, lot, spread, and so forth.
If you are interested in trading stocks or commodities then you should first get some basic education on those instruments. For example, if you want to trade stocks you can first learn how the stock market works. Once you understand that you can study a particular stock and gradually move up the ladder.
Remember that the core concepts of online trading are more or less the same for nearly all the products. For example, the concept of short selling and leverage remains the same for Forex, stocks, commodities or any other financial instrument. Similarly, if you know how to read the charts you can analyze almost any financial instrument. Finally, if you learn technical tools like RSI, Moving Average you can apply them to any instrument in online trading.
Online trading is a vast field, you will have to spend a lot of time watching the screen. This will help you understand how the prices move and how they respect certain levels. This will also help you to build a trading strategy which is also the second step in our guide. So let’s move to the second step.
2. Build a Trading Strategy
Once you’ve taken some education you will have more confidence to build a trading strategy. Let’s assume now you know the product you want to trade and you are also familiar with its core concepts. Understandably, the more advanced concepts will be a bit unfamiliar to you at this state. But as you move along you’ll learn everything with it.
What is a Trading Strategy?
So what is a trading strategy? A trading strategy is a series of rules that highlight when to buy and when to sell. Managing the risk is also part of a trading strategy. At this stage, you should focus on building a very simple trading strategy.
Avoid Complicating the Strategy
You may have heard about SS before, it is “Simple Stupid”. So as it sounds you need to avoid overcomplicating your strategy. The strategy after all is not the be-all and end-all that makes a successful trader. In fact, it goes a lot deeper than just trading psychology, risk management, and so forth.
You should remember that a strategy is never going to be flawless. Every strategy will have a losing streak and you need to know how to deal with the losing streak. You should analyze the losing streak and learn from it. Remember, knowing what is done in the past always helps in the future.
Test Your Trading Strategy
You can test your strategy on a demo account, almost every online trading broker provides a free demo account. Another way to test is by using some online backtesting software. Backtesting your strategy will give you confidence. You should make sure to stick to the walls of the study especially when you’re learning.
3. Choose a Forex Broker
Now in this step, you need to find an online broker to open an online trading account. A broker is a middleman who executes your trades in the market. When selecting a broker, you have to make sure that the broker is offering everything you want to trade.
Avoid Paying High Trading Cost
The other things you need to look at are the broker’s commission and spread. Spread is the gap between buying and selling prices. A good broker will have a tight spread and very low or zero commission. It essentially means you have less trading costs and more room to make a profit.
Always Choose A Regulated Broker
Another thing to look at is the broker regulation (FCA, ASIC, CySEC,..). Make sure to check if the broker follows the walls of a certain true jurisdiction in which it is located. You may also need to look at the broker’s customer service. Because, in the beginning, you will have many questions and concerns.
Choose The Right Account Type
Finally, after looking at all these things you can focus on different types of brokerage account. The broker might offer Mini, Standard, and STP (Straight Through Processing) accounts. Different brokers name their accounts differently. Usually, the main difference in these accounts is spread, instrument range, and additional features like an automated trading system. Once you finalize an account type you can start the process of opening a brokerage account.
Things you Need to Open A Brokerage Account
To open an online brokerage account, you will have to fill in the basic information about yourself. It includes your name, address, date of birth, employment details, and so forth. The broker might ask for a photo ID and utility bill to verify the address. Once you complete that broker’s compliance department will review your application. They will either approve your application and issue an account number or ask for additional requirements.
Once your account is active, it would be the time to fund it. Brokers provide different methods to fund your online brokerage account. You will get various options including wire transfer, credit card, and e-wallets. Many brokers now even accept digital currencies like bitcoin.
4. Take the 20 Trade Challenge
Until now you have basic education, a trading strategy, and a newly opened account. Now in this fourth step, you need to give yourself a unique 20 trade challenge. The challenge is to make 20 trades by following your trading strategy and writing down your rules of engagement. After all your trading strategy concludes when to buy when to sell and how to manage the risk.
Make It a Serious Challenge
You need to make the 20 trades by completely following your trading strategy. The purpose of this 20 trade challenge is to test your trading strategy. This challenge will also test how strictly you follow your strategy. The majority of the new online traders fail because they can’t follow their own trading strategy.
So if you are serious about trading, you will take it as a serious challenge. The end result of this challenge will fix flaws in your trading strategy. It will make you a disciplined trader, and also help you on the emotional side of the trading business.
5. Keep a Trading Journal
So far we have talked about taking education, building a strategy, choosing a broker, and taking the 20 trade challenge. Now it’s time to move to the next step which is to keep a trading journal. The journal will maintain a record of each trade and help you to improve your trading. To maintain a journal, you can use a spreadsheet or you can do it manually on a piece of paper.
The Journal is You Guide to Future Trades
As a matter of fact, the winning trades are great but the losing trades are also not money wasted. It’s a part of the natural trading process. Using the journal you can analyze why a particular trade went in the loss. It will help you not to repeat the same mistake in the future. So make sure to journal all your trades and let those lost trades become a learning source.
By following these five steps to open a brokerage account you will have a strong foundation of online trading. The education and the trading strategy will give you much-needed confidence. Your trustworthy broker will always be by your side. The 20 trade challenge will make you a disciplined trader. Finally, the trading journal will become a source to improve your trading strategy.