If you want to invest money, you will have to open a brokerage account, for this purpose, you will make significant decision for selecting a broker, because a broker plays an important role for managing your investment. Before going to open brokerage account, you have to sign an account contract, which finds out that you have come in the legal contract.
Keep it view, before signing on a contract, you must read all terms and conditions which are to be imposed on you. Some people just rely on the statement of account, which is not actually in the contract. It is also important to retain the copy of agreement which is prepared by broker.
In the procedure of account opening, broker acquire different questions about your investment and personal information. He asks about your source of income, net worth of asset and how much risk you can tolerate. All these information which are taken from broker, is just to determine that what type of investment is favorable. It is a bad sign, if broker tries to sell out your all investment without your consent, which shows that broker is taking interest in your investment and he or she want to make commission on your account. Following are the three things which are required for where an account is opened.
1: Unrestricted Authority
In order to invest, you will have to take the final decision about your investment and will have to give unrestricted authority to broker. Unrestricted authority gives permission to broker to invest your money without your consent about price which includes the sort of security, actual amount and time to sell or purchase. Always keep in mind to do not give permission about unrestricted authority to broker without understanding the risk, which is involved in investment. Also note that your broker cannot accept the unrestricted authority until he is registered as a financial advisor.
2: Cash Account & Margin Account
There are two types of accounts, if an investor opens cash account; it means that you can purchase security after paying full price and if an investor opens margin account, you can purchases securities by taking the money from broker only for the purchase price. You must know about all the precautionary measures of margin account that what are the benefits and drawbacks of it. You should keep everything possibility about worst and good scenario as margin account is totally different from others loans, like personal loan and mortgage finance, where you have to pay a fixed sum of amount on each month, but in margin account, you have to pay back whole margin advance in lump sum, when there is recession and the price of stock decrease down abruptly. In order to cover any shortfall in the value of securities, the firm has the authority to sell out all without serving you any notice about this decision, but the decision of lending securities does not disturb the worth of your account.
3: Risk Taker & Risk Averse
While opening of your account, you must have the knowledge of risk which is expected in investment. You should read and understand all terms and conditions regarding risk in the investment. Risk may include the following terms;
c) Aggressive growth
You must understand the difference among these terms that risk is directly reflecting on your investment goals. During the procedure of account opening, broker takes the signature on the legal paper that depicts the solution of future disturbance/dispute between investor and brokerage firm or sales officer. This contract shows that you as well as your brokerage firm can sue case in court of law.
To open a brokerage account is not simple deal rather you have to go through all the terms and conditions which are to be imposed on you. One must have knowledge about broker and financial market where you have to invest you money. All these facts and figures motivate an investor to take right decision where he or she is going to open brokerage account.
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