Opening a Trading Account
The brokerage account you need is similar to an electronic banking account. After opening the account, you access and manage it via the Internet. Your balance is updated in real time and your orders are executed electronically without human intervention. The trading software provides you with up to date price quotes and sophisticated charts.
My preferred broker is Interactive Brokers, but others may be equally good. In the past, I traded with Xpresstrade who were also good – their user interface may be simpler for new traders to follow. As of writing, IB charges $2.40 brokerage fee, Xpresstrade charges $5. A simple Google search will find several brokerage companies to choose from.
You may be surprised that I, an Australian, deal through US brokers. My priority is to find the broker with the best facilities and lowest fees. Offshore investors should not be put off opening a brokerage account in the US. Funds are deposited and withdrawn using simple bank transfers set up over the Internet. US brokerages are as well regulated and policed as any, quite possibly better than in your own country.
IB provides several different options for entering orders, and all screens can be configured by the customer. Personally, I have two windows open. One is a chart window set to follow the session using 2 minute candlestick bars. The other is the Book Trader window which displays market depth at various price levels, and permits one click entry of common order types. For example, left clicking a particular price level enters a Limit order, and a right click enters a stop order. Buy/Sell buttons at the top of the screen enter immediate Market orders.
You can apply for an account at a brokerage by completing the application forms on the broker’s web site. Be prepared to spend a bit of time on this because because there are several documents to be read and completed. It can be intimidating the first time you do it; there is a lot of boilerplate ensuring that you understand the nature of various risks involved. You are also asked questions about your assets and prior trading experience. The brokers need to advise you of worst case scenarios and ensure they cannot be held responsible for losses incurred during normal trading activities.
If you are a non-US resident, you must fax copies of your passport and a utility bill to the broker to comply with security regulations. You must also complete a W-8 form for tax purposes, or the brokerage will be obliged to deduct U.S. withholding tax from profits.
