If you feel ready to become a trader, you should take a while and learn the basic difference between the available trading accounts. A trading account is similar to your bank account, but it lets you hold and trade cryptocurrencies, shares, bonds, or other financial products. This guide by forextb.com brokers will help you understand which account type is the best for you and how to open it correctly.
Types of Trading Accounts
Depending on your needs, you can select one of the following account types:
Cash account – this type lets you acquire securities for their full price and without the right to borrow funds from your broker. All the items in your cash account belong to you and can be traded for the full market price.
Margin account – Margin trading accounts allow you to borrow certain amounts from your broker to have trading operations. It’s a convenient option if you want to obtain more crypto funds or securities to trade. The risks are also higher as you are obliged to reimburse your broker if the purchased securities lose their initial value. Brokers are also eligible to sell your collateralized funds to cover losses if necessary.
Equity and derivatives account – the value of a derivative contract depends on the agreed value of an underlying security or asset. A stock exchange trading member is required for this type of account.
Commodity account – using this account type, you can trade primary economic products, such as oil and gold rather than manufactured items. This account will provide you with a better scope of events in the commodity market.
Share account – this one is designed specifically for conducting all types of share trading operations without distraction. Such an account can support both day-trading and long-term strategies.
Option account – using options, you achieve the right to sell or buy securities at a certain rate and within a specified period. You can only open it if your net worth size is acceptable to the broker.
IRA or other retirement accounts – although these account types are mostly for saving money, they may offer trading features too. All trading operations will be limited for your capital protection. You can trade, but margins, short positions, and options are prohibited. In some cases, options are allowed, but only covered calls, long calls, put positions, and cash-secured puts.
Opening a Trading Account
After choosing the right account type, you can go ahead and open it, but consider the following steps as essential:
- Select a broker – finding a trustworthy broker always requires in-depth research. You want to figure out every small detail as a good broker is already a part of your successful trading career. You can choose between a discount and a full-service broker. The first will provide you with trading services at a minimal market cost. The downside is that they won’t give you more than the very basics. Full-service brokers always offer extras, such as tax planning and/or retirement plans.
- Compare brokerage rates – there’s no secret that all brokers charge commissions for operations, but the total fee size is always different, depending on the broker and the provided features. Look for the fairest and most transparent broker to avoid unwanted regular expenses.
- Fill the KYC form – when you choose a broker, you have to fill out this form to open a new trading account and obtain the services of your broker officially. This step can be done both online and offline, depending on your case.
- Submit the KYC application – before doing this, make sure that you can prove your identity and address with a passport, driver’s license, PAN card, or any other active document.
- Wait for verification – as soon as your account is verified, you will receive your account details. You can now start trading!
To The Big Game
Having a wide choice of trading accounts and a much broader array of high-quality trading platforms, you are free to select the option that satisfies all your requirements and matches your trading style. Testing various options is a good initiative, but we don’t recommend you to jump from one account to another until you squeeze the most out of your first one.