| Online Investing - Opening Your First Online | | | | than you would presume. |
| Account | | | | |
| | | | Different Levels of Authorization For Online |
| The commercials on TV make it seem so easy - | | | | Investing Accounts |
| open your investing account, begin trading | | | | |
| that day, and in no time, you'll be able to | | | | Did you know that your credit history comes |
| retire a millionaire. Well, online investing | | | | into play when you want to open an online |
| is easy - but it isn't quite that easy. | | | | account? This is because some forms of |
| | | | investing pose a financial risk to online |
| The online companies don't tell you that | | | | investing companies. For example, when you |
| there's an application, and an account | | | | buy on margin, you are borrowing money to buy |
| approval period that can be rather | | | | stock. |
| frustrating for a newcomer to online | | | | |
| investing. | | | | If you have less than stellar credit, online |
| | | | companies may deny you the use of margin. |
| The Online Investing Account Application | | | | Furthermore, shorting stocks (selling stocks |
| | | | which you don't own in the hope that they |
| Common sense tells you that online companies | | | | will decline in value, and then buying them |
| are going to need your name, address, phone | | | | back at a later date) also poses risk for |
| number, etc., but you might be surprised at | | | | online investing companies. |
| just how much information they do need to | | | | |
| know. | | | | What happens if you short 100 shares of a |
| | | | stock that's trading at $40 and it goes to |
| For example, they'll need your birth date, | | | | $200? Do you have $200,000 to buy back the |
| social security number, employment | | | | stock? If not, then the investing company |
| information, liquid net worth, total net | | | | loses, so if you have poor credit or limited |
| worth, annual income, tax bracket, and much | | | | liquid net worth, you may be denied the right |
| more. | | | | to sell short. |
| | | | |
| Why do these online investing companies need | | | | More troubling is the idea that online |
| so much information? One reason is that they | | | | investing companies can limit you from doing |
| are required by law to verify your identity. | | | | things that don't directly pose financial |
| Following the events of 9/11 and the passage | | | | risks to them. For example, buying call and |
| of the Patriot Act, the government has called | | | | put options poses no risk to an online |
| upon financial service companies to help stem | | | | broker, but the company may still deny you |
| the flow of money to terrorist groups. | | | | the right to buy options on the grounds that |
| | | | you lack experience. |
| In practice, this is nothing but a big hassle | | | | |
| for the 99.99+ percent of people engaged in | | | | Why should the online company care? Because |
| investing who have nothing to do with | | | | theoretically, you could sue them for not |
| terrorism. It depends on your political | | | | protecting you from yourself - blame the |
| persuasion as to whether or not it's all | | | | trial lawyers for this one. |
| worth it. | | | | |
| | | | Don't Be Scared Off |
| Regardless of your political views, the fact | | | | |
| is that the Patriot Act is the law, and | | | | The vast majority of people who want to open |
| because of it online investing companies will | | | | online accounts are able to do so with |
| go to great lengths to verify your identity. | | | | relatively little trouble. Some people, |
| For example, if you're a married woman who | | | | however, get a lot more of a hassle than they |
| has recently taken her husband's surname, | | | | bargain for. The important thing is to be |
| investing companies might delay the approval | | | | prepared to disclose a lot of information, |
| of your account. | | | | and to wait while your account application is |
| | | | being processed. The more you know going into |
| You will have to prove to them beyond a | | | | the situation, the less frustrating it will |
| shadow of a doubt that you are who you say | | | | be. |
| you are, and this is sometimes more difficult | | | | |