What is a brokerage account and how to open one
Learn about brokerage accounts, the different types of online brokers, and how to open a brokerage account.
What is a brokerage account?
A brokerage account is a type of account that grants you access to financial markets, allowing you to buy and sell various financial derivatives on instruments such as shares, indices, commodities and more. With a brokerage account, you can pursue your financial goals, whether you're focused on building a long-term investment portfolio or engaging in short-term trading.
Different types of brokerage accounts are tailored to various trading styles and objectives. Knowing these options can help you select the account type that best aligns with your needs.
What is an online brokerage?
An online brokerage is a financial services provider that operates through digital platforms, allowing traders to access and participate in financial markets.
Online brokers offer a range of markets and assets, including shares, indices, commodities, cryptocurrencies and forex. Often, they provide tools and resources such as real-time price charts, technical analysis indicators, educational materials and 24/7 customer support to help traders make informed trading decisions.
Choosing an online broker means you can trade any time and anywhere, as long as you have an internet connection. This convenience has made online brokers a popular choice for both new and experienced traders.
What are the different types of brokerage accounts?
There are several types of brokerage accounts available, each tailored to different goals and trading preferences. The first step is to decide whether you want to invest in securities or trade derivatives.
Traditional brokerage accounts (securities)
Traditional brokerage accounts allow you to buy and sell financial securities, such as stocks and bonds, giving you direct ownership of the assets. These accounts are generally suited to investors aiming for long-term growth.
Potential benefits
- Asset ownership – shareholders have voting rights and may receive dividends.
- Longer-term investment – suitable for building a portfolio over time.
Limitations
- Higher fees – traditional brokerage accounts often charge high transaction fees and commissions, which can impact overall investment returns.
Derivatives brokerage accounts (derivatives)
Derivatives brokerage accounts offer access to financial derivative products like contracts for difference (CFDs), allowing traders to speculate on price movements across various markets without owning the underlying assets.
Potential benefits
- Access to diverse markets – including shares, indices, commodities, cryptocurrencies and forex.
- Go long or short – you can aim to profit from both rising and falling markets.
- Leverage – the ability to amplify potential returns for a relatively small outlay, through the use of margin trading.*
Limitations
- No asset ownership – you don’t receive dividends nor voting rights associated with share ownership.
*Leverage can increase exposure, magnifying potential gains as well as potential losses.
Choose a brokerage account that aligns with your trading preferences, risk tolerance and financial goals.
What is a trading account?
A trading account is a specialised brokerage account that provides access to an online trading platform or app, primarily for trading financial derivatives.
The two main types of trading accounts are:
- Demo accounts – which allow risk-free trading with virtual money, where traders can practise strategies across different asset classes, and get comfortable with the platform.
- Live accounts – which enable trading on live market prices with real money, while gaining exposure to potential profits and losses.
How to set up a brokerage account
Setting up a brokerage account is straightforward. With us, you can be ready for the markets without delay. From selecting your account type to registration and final approval, the process is simple and streamlined – getting you trading within a few steps.
1. Choose a broker
Choose an online broker that provides a trading platform which suits your trading preferences while providing resources to grow your skills. If you’d like to learn more about selecting a derivatives broker, check out our comprehensive guides on how to choose the best trading platform and best trading app.
2. Register for a trading account
Visit your chosen broker’s webpage or download its mobile app. Find a button in the top-right corner of the screen that says ‘sign-up’ or ‘register’ and click on it. This should take you to the first stage of sign-up. You may be asked some questions along the way.
3. Complete KYC
If the brokerage is compliant with financial regulations, it should ask you to complete an identification verification process known as ‘KYC’ before you can begin trading. KYC stands for ‘know your customer’ and it’s an essential component of anti-money laundering (AML).
4. Learn the basics of trading
Before you start to trade, it’s recommended to boost your knowledge of financial markets, particularly about the markets which you’re interested in. Learn the basics of trading, then scale up your awareness about technical analysis, indicators, trading strategies and the fundamental factors which may influence asset prices.
5. Practise with a demo account
Get comfortable with your chosen brokerage’s trading platform and different trading strategies by registering for a demo account. You can practise trading risk-free with virtual funds to boost your skills on a demo account before moving on to the real thing.
6. Build a trading strategy
Real money is involved when trading on a live account, so come prepared with a trading strategy that’s personalised for your needs and preferences. Day trading strategies, for example, focus on shorter-term price movements, and might conclude within the course of one day. Meanwhile, position trading strategies involve longer-term price movements.
7. Manage risk
Use tools like stop-loss orders to limit potential losses and take-profit levels to secure potential gains*. Diversification and hedging could also help traders manage risk effectively.
*Stop-losses are not guaranteed and depend on various factors, such as market liquidity.
