Online Bitcoin wallet API
What Are the Account Minimums?
To the inexperienced investor, investing may seem simple enough - all you need to do is go to a brokerage firm and open up an account, right? What you may not know, however, is that all financial institutions have minimum deposit requirements. In other words, they won't accept your account application unless you deposit a certain amount of money. Some firms won't even allow you to open an account with a sum as small as $1, 000.
Stockbrokers come in two flavors: full-service and discount. As the name implies, a full-service broker provides much more in the way of service, but it only deals with higher net-worth clients. It's common to see minimum account sizes of $50, 000 and up at full-service brokerages.
This leaves the $1, 000 investor with the option of a discount broker. Discount brokers have considerably lower fees, but don't expect much in the way of hand-holding. Fees are low because you are in charge of all investment decisions - you can't call and ask for investment advice. With $1, 000, you are right on the cusp in terms of the minimum deposit. Some discount brokers will take you and others won't. You'll have to shop around.
With the advent of online trading, there are a number of discount brokers with no (or very low) minimum deposit restrictions. One of the most popular online trading sites is Scottrade. You will, however, be faced with other restrictions and see higher fees for certain types of trades. This is something an investor with a $1, 000 starting balance should take into account if he or she wants to invest in stocks.
Mutual Funds and Bonds
If mutual funds or bonds are investments you would like to make, it is simpler in terms of minimum deposit amounts. Both of these can be purchased through brokerage firms, where similar deposit rules apply as for stocks. Mutual funds also can be purchased through your local bank, often for less than $1, 000 when you have an existing relationship with the bank.
Learn the Costs of Investing
Commissions
Before you open an investment account, you must also consider the costs that you will incur from purchasing investments once the account is open. In most cases, every time you purchase an investment, it will cost you money (through commissions). With a limited amount of funds, these transaction fees can really put a dent on your $1, 000.
Now, imagine that you decide to buy the stocks of those five companies with your $1, 000. To do this, you will incur $50 in trading costs, which is equivalent to 5% of your $1, 000. If you were to fully invest the $1, 000, your account would be reduced to $950 after trading costs. This represents a 5% loss before your investments even have a chance to earn a cent!