As our younger readers might have noticed, there aren't many online resources for teenagers and young adults who want to buy stocks (at least not many resources that have been updated within the past 10 years). We are here to help you get started. Here's how you open your first online brokerage account.
If you are under 18, your parent or guardian will need to open a custodial account account for you with your broker of choice. With a custodial account, the account will be under your name, as well as your parents' (who bear legal responsibilities for the account on your behalf). You own the money in the account, and once you turn 18, you become the sole owner of the account. In most cases, a custodial account is the way to go.
Choosing An Online Brokerage Firm
Once your parents agree to opening a custodial account for you, the next step is to pick a brokerage firm. Online brokerage firms are perfect for first-time investors looking to buy stocks & ETFs because they typically charge have lower minimum balance requirements and commissions. We highly, highly recommend that you read our our explanation of online brokerage fees here. If you have time, check out this helpful article as well.
There are 3 factors for a young investor to consider when choosing an online broker: (1) the cost of trading with a given broker, (2) the amount of educational resources that the broker offers and (3) the quality of the mobile & desktop trading tools that the broker makes available. As you become a more experienced trader, you will also have to consider the types of assets you want to trade, since some online brokers also allow you to trade mutual fund shares, futures and forex (in addition to stocks). But since this is your first foray into trading, we are going to suggest that you stick to stocks and ETFs for now.
You want an online broker with low trading costs, lots of educational resources and a great mobile/desktop trading platform. However, you'll often find that online brokers excel in one area and neglect others. For example, Scottrade is great for trading stocks cheaply, but good luck using their mobile app. Keep in mind, though, that a shiny new mobile application is probably (definitely) the least important of all criteria when it comes to choosing an online broker (plus, Scottrade has a great desktop trading platform). For the relatively lower price of trading, Scottrade is still a great value. No broker is going to be a small dunk in all three areas. You are going to have to weigh the pros and cons of each broker according to your needs, and thats where we come in.
Below are a few brokers that you should check out:
Remember when we said that no broker in all three categories? Well, ShareBuilder comes close. At $6.95 per trade, ShareBuilder is right there with Scottrade in terms of affordability (both online brokers offer have the lowest cost per trade among the major online brokers, next to discount brokers like OptionsHouse and Interactive Brokers...we will discuss discount bikers in a bit). Furthermore, while most online brokers require that you initially deposit anywhere from $500 to $2500 to open an account, ShareBuilder does not.
ShareBuilder's Knowledge Center is a great educational tool for young traders. Their mobile app lets you trade stocks, ETFs and options on the go while providing detailed stock quotes.
TDAmeritrade is the only other major online broker (besides ShareBuilder) that doesn't require a minimum balance to open an account. However, TDAmeritrade is more expensive on a per-trade basis (each trade costs $9.99).
TDAmeritrade offers the some of the best mobile/web trading platforms, and is the #1 choice for low-frequency traders who appreciate intuitive tools that allow them to monitor their accounts on the go. TDAmeritrade also offers the most comprehensive research and market commentary.
The only other online broker that offers better trading platforms that TDAmeritrade is E*Trade. However, E*Trade has two drawbacks. The first is that it the minimum required deposit to open an E*Trade account is $500. The second is that E*Trade doesn't offer virtual trading. With virtual trading you can trade without purchasing actual stock (you get virtual shares that you can monitor). This is a handy tool for traders who want to test out trading strategies and is especially useful for young investors who are new to trading. Virtual trading is a common feature on most online broker trading platforms, including TDAmeritrade's.
OptionsXpress is cheaper for trading options and futures then it is for trading stocks (they charge a $9 per trade fee for stocks). Still, they have no minimum required balance and a recently updated mobile application, making OptionsXpress an attractive alternative.
OptionsXpress really excels in the educational resources department. They have webinars, articles and newsletters that are great for both beginners and experienced investors. They also have a useful virtual trading platform that allows you to practice trading $25,000 worth of a stocks (or whatever assets you choose). This allows you to practice trading while you are becoming familiar with the OptionsXpress platform.