Before you can buy stock on any American stock exchange, you need a broker account. That is an account that will hold your cash, hold your stocks, and from which all transactions will be made. Brokers today operate online and some of them have physical offices in major cities as well.
What Is An Online Stock Broker Account?
A stock broker account is an account where all your stock related investments take place and it is very convenient for investors. You will be able view at any time what stocks you own, how much cash you have, what stocks you have bought and sold, as well as the tax information needed for IRS reporting. It is your one stop portal to all your stock investments and everything is taken care of electronically. You can also buy a lot more than just stocks in a broker account including ETF’s, Bonds, CD’s, mutual funds, and options.
First you have to deposit money into your broker account. Then, once you start buying stocks, you will have a mix of cash and stocks in your account. You can log on any time to see what the value is of your holdings which are updated constantly throughout the trading day.
Some stocks pay a dividend and that money is automatically deposited into your broker account for you. It goes into the “Cash” portion of your account which is usually a money market account that earns a tiny bit of interest. Whenever you sell a stock, the proceeds also go into the money market account and that balance is what you can take out (if you need to) at any time).
How To Deposit Money Into A Broker Account
Anyone can open an account at one of the many online brokers. Some have no deposit minimums and others have up to a $2,000 minimum needed before you can start a new account. Whatever amount of money you deposit, make sure it is money you won’t need soon as buying stocks should be a long term endeavor.
Deposit metods at all online brokers include wire transfer, electronic (ACH) transfer, and check. Most people link a bank account to their broker account and have the money electronically transferred. I have also used the paper check option on several occasions but that takes longer to go through.
Once your money has been successfully transferred into your new account, you will then be able to start buying and selling stocks right away.
Buying And Selling Stocks In A Stock Account
Buying stocks is easy in your broker account. Anyone who is used to doing things online should be able to figure it out quite easily and it only takes a couple of button pushes. Once you buy a stock, you will immediately see it in your account under the “Balance & Positions” section. You now own the shares of the stock you bought you don’t have to do anything else. Every day the market is open you will be able to log into your account and see the value of that stock go up or down.
When you buy a stock, the money comes from the cash portion of your account so obviously, your cash will go down every time you purchase a stock.
When you decide it is time to sell a stock, the stock will disappear from your account and the proceeds will be added back into cash. If the stock went up while you owned it, you will get more cash back than went out at the time you bought. Everything is done for you and done automatically. After selling a stock, you will be able to see a record of it under the “Realized Gain/Loss” section of your account. This information is important because you have to report ALL gains and losses on your taxes!
How To Take Money Out Of Stock Account
How do you get your money back into your bank account after you sell a stock? If you make money on a stock, how do you get that money?
As discussed above, selling a stock will result in that money being added to your cash total and that cash can be taken out any time you want. Withdrawing any or all of the cash portion in a stock broker account is easy and just the opposite as when you put it in: you can get it back by wire transfer, electronic transfer, or by check.
If you want a check sent to your address, you can request it online very easily. An electronic deposit back into a bank account (that you have verified) should take place quickly and easily if you choose that option. Finally, a wire transfer might cost an additional fee but that can be done as well. A check takes the longest as it is delivered through the mail and the electronic transfer should take 1 to 2 business days.
The bottom line is that any time you want your money, you can withdraw it easily and reliably. Remember, the mainstream online brokers are all reputable and the cash portion of your account is covered by FDIC insurance just like if the money were in a bank.
That is how a stock broker account works and for most younger people, it should be quite easy to figure out. While it may take a short time to get used to, opening your first stock broker account is an extremely important step to getting your retirement planning under way.