Many investors buy stocks online, through an investment account at an online broker.
While 20 years ago this would have been a complex endeavor involving many steps, it’s a lot simpler these days. In this
article you’ll learn how to select a low-cost broker and getting your account started using only your cell phone.
As per a recently conducted study, around 54 percent of Americans invest in the stock market. Traditionally, people used to invest or buy stock through a person known as a broker. Brokers were licensed to buy and sell stocks on behalf of their clients. However, now you can buy and sell stocks online through a brokerage website. Currently around 14 to 15 million households in
the United States are actively using online trading services.
With online trading, you are free to make your decision by yourself. Such an approach is different from taking the help of a stockbroker as the broker generally offers input and advice. Well, before you make any decision, you need to find what type of stock brokerage is right for you. You will find two major types, these are discount brokerages and full-service brokerages.
Here’s an overview of the difference between the two.
The difference between Full-Service and Online discount brokerages
With a full-service brokerage account, you can trade bonds, mutual funds, stocks, and other investment products. Such brokers do more than facilitate the selling and buying of stocks. They also offer different types of products and services, like investment and tax advice, financial planning, frequent portfolio updates, and more. Since you will be getting all such types of
services, full-service brokerages generally come with a higher amount of fees. Both for starting out, and in terms of maintaining your account.
Most full-service brokerages will expect you to invest minimum USD 5000 to USD 10,000 to open an account. Others require a monthly fee to maintain your account.
Online discount brokerages
The internet is the great equalizer in that it makes products and services which were once the sole possession of the elite, available to the masses. This is no different in the brokerage game.
Don’t think that because we’re referring them as discount that the quality of service is low (on top of that, you don’t get the stocks at a discount either). Discount brokerages merely refers to websites or apps that offer a trading platform to the investors, but not much else. In practical terms, you will get access to fewer trading features compared to a full service brokerage. But as a newer investor, many of these are features you don’t require anyway.
By removing features which aren’t necessary for new investments, they can charge lower fees than their full service counterparts. Some also offer free educational and research tools to help investors in making better investment decisions. Unlike full-service brokerages, online discount brokerages don’t have various branches. They provide only online services. So, for the majority of the first time investors, you don’t need more than a discount online brokerage.
Now we’ve covered the difference, let’s get your account open and begin investing.
What do you need to open a trading account?
● A Bank account
In order to start investing in the stock market, you need to have a bank account. You will need a bank account and debit card to fund your trading account, which is where you will buy and sell shares. You cannot use a credit card to sell and buy stocks. For US brokers like Robinhood, you will need a US bank account. For offshore brokers you may be able to use foreign bank accounts.
● Social Security Number
You’ll need your SSN to verify your identify and to verify your tax status. The initial intention of the identification number was to track the people’s earnings but is now used for a different purpose, such as to check the credit record, for tax purposes as well as for trading.
It is now mandatory to have an SSN in order to open a trading account. Brokerages need the SSNs to comply with various tax laws, record-keeping procedures and to evaluate a suitable investment. Besides, when you open a trading account, you need to submit your TIN – Tax Identification Number, which is generally your SSN.
● Photo identification
For photo identification, you may submit any national ID card or your current driving license. You can also use your passport for photo identification. Photo identification is a mandatory step to open a trading account to buy stock online.
The easiest way to buy stock for first timers
Are you looking for a commission-free trading platform that you can use direct from your cellphone? If the answer is yes, then Robinhood is a perfect option for you. It is a commission free-trading app that enables the users to trade stock, cryptocurrency, options, funds, gold, and cash management. Commision-free means you only pay the price of the stock, without any extra fees for placing the trade.
The story behind the formation of Robinhood is quite interesting. It was established by two college classmates named Vladimir Tenev and Baiju Bhatt. After completing their graduation, they moved to New York and developed two finance companies to sell trading software. They found that most of the investors were paying fees for their every trading. The duo then decided to develop a product that can help everyone to have access to the financial markets. So, they returned to California from New York and developed Robinhood. Robinhood utilizes advanced trading technologies to make investing accessible for all.
The zero balance to open an account and low fees are some of the major factors that attract new investors. The platform is perfect for newcomers or investors who want to trade in small quantities. Besides, it enables users to carry out cryptocurrency trades.
What stocks can you buy with Robinhood?
Want to make your money more useful for you? Robinhood is a perfect platform for you. The platform supports investment in different assets, starting from stocks to cryptocurrencies. As per the platform, you can invest more than 5000 stocks on various exchanges, including Exchange-Traded Funds (ETFs) and U.S. equities.
Things that you can buy/sell using Robinhood are:
● United States exchange-listed stocks
o Most OTC markets
● Cryptocurrencies such as Bitcoin and Ethereum
● ETFs like SPY and QQQ
● Options contracts.
● ADRs for more than 250 global companies. The ADR stands of American Depositary
Receipt. It is one type of negotiable security and can be traded in the financial market.
Things that you can’t buy or sell using Robinhood are:
● Mutual funds.
● Tracking stocks.
● Selected microcap stocks listed on smaller exchanges.
● Preferred stocks.
Is it free to trade on Robinhood?
Robinhood doesn’t ask have any commission fees when it comes to buying and selling common stocks, ETFs and Options.
There is also no monthly fee to use the platform. Nor are there fees to open an account.
Coming to the stock investment, investing in stocks with Robinhood is free of commission. It doesn’t charge fees to open an account and maintain the account as well as transfer funds to the account.
The only fees involved are an optional premium membership to Robinhood Gold. Robinhood Gold starts from $5/month and allows margin trading as well as higher deposit and withdrawal limits. For most investors, a free account is just fine.
There is no minimum balance to keep your Robinhood account open. You can start your trading right away. However, to start investing, you will need enough cash to purchase your stocks. In order to open the Margin account, the platform requires you to have a minimum portfolio balance of USD 2000.
There is no doubt that Robinhood is quite popular for offering various selection options of stock and ETF. Without paying any fees, you can buy stocks and ETFs online. However, if you want to enjoy more features, then you can start using Robinhood Gold. It lets the users begin trading 30 minutes before the stock market opens and can also trade for two hours after the stock market closes. This is ideal for new investors who are looking for advanced investment options.
The Gold user can watch live bids through the Level II Market Data. The users can get instant access to USD 5,000 to USD 50,000 margin when they make a deposit. You can also invest on margin through Robinhood gold. However, the company advises new investors not to go for margin trading.
In January 2019, Robinhood entered into the cryptocurrency trading industry after getting the BitLicense from the NYDFS- New York Department of Financial Services. Currently, the platform supports trading of 7 types of cryptocurrencies, such as Bitcoin, Ethereum, Bitcoin SV, Bitcoin Cash, Dogecoin, Ethereum Classic, and Litecoin. You can buy and sell any of these cryptos 24/7 without paying any commission. This is a factor that has made this a popular crypto trading platform.
The platform has greatly simplified the crypto trading for the new investors who want to invest in the crypto trading market. Just open a Robinhood Crypto account, and you are ready to go.
How to get free stock on Robinhood
The best part about the Robinhood platform is it also offers one free stock to the new users when your application is
approved. You can sell your free stock after 2 trading days, or you can keep it as part of your portfolio. This is a simple way to start your investment portfolio with zero money invested, how cool is that?
Your free stock will be a company which trades between $5 and $150 per share. Some examples in the screenshots below are people who have received Facebook and Microsoft stock.
Besides, whenever you invite a new friend to Robinhood, you as well as your friend will earn a free stock. Once the application of your friend gets approval, a free stock will be transferred to your account.
Steps to claim your free stock
To get your free stock, open the Robinhood app, and you will see the “Invite friends, get free stock” option in the lower right corner. Tap on it and then click on the “Invite Contacts” option. Now choose your friend’s names and send them the invitation. You will get the free stock, after the approval of their account.
Per year, you can win up to USD 500 free stock. You can check the cost of the stocks in the “Statement & History” option.
Frequently Asked Questions
- Can I buy stock without a brokerage account?
Yes, with Robinhood, you can now buy stock online even if you don’t have a brokerage account. All you need a trading account to get started with this.
- Can you open an account with bad credit?
Because Robinhood is a cash-based platform, they don’t consider your credit score. So don’t worry if you have bad credit. They don’t report the users’ credit scores to credit bureaus, and neither it will help you to improve your credit score. It’s just a commission-free trading platform.
- How much money do I need to open an account?
Well, with Robinhood, you can open your account without any minimum deposit. This is a good thing for new investors. You can add funds as you get more experience in the market. However, to create a margin account, you will have to deposit $2000. It is also called Robinhood Gold. Using this account, you can trade with leverage. It is quite easy to open an account with Robinhood. Submit your application through the app, and once it gets approved, you will get a confirmation mail.