How to Open a Trading Account & Trade?

First things first. Why should you consider opening a trading account? Financial independence is attained by multiplying your streams (sources) of income. Stocks pay dividends and can gain value with time. Nevertheless, not all stocks are created equal. Some won’t either appreciate in value or pay dividends for years.

I share with you a step-by-step guide based on my own experience on how I opened my first trading account in May 2023 with the Credit Financier Invest (CFI). It seems to be the most reliable intermediate to access stock markets which has local offices in Lebanon. Disclaimer: I am not promoting anything, I am just sharing my own experience.

I am writing specifically for residents (Lebanese or foreigners) in Lebanon who are eager to open a trading account. Nevertheless, the steps are certainly similar in other jurisdictions, albeit easier!

What is a resident of Lebanon? Anyone who lives and works for most of the year in a particular country, regardless of his nationality, is a resident of that particular country. In our case Lebanon is the host country, thus foreigners such as Egyptians, Syrians, Palestinians, and Iraqi living in Lebanon, despite not holding Lebanese passports, are accounted as residents. In a population census, all residents are counted regardless of nationality.

1st step: Choose a trade provider. I encourage you to research the online providers of trading. Why did I choose Credit Financier Invest? CFI has been recently flooding the country with billboards on the roads and in malls (even at airport departure and arrival terminals), and TV ads on local news channels. It seemed reliable to me from the clarity of the information on their website. Financial Institutions, such as CFI, enable you to access the stock markets of your choice. Be it in the US (NYSE, NASDAQ, COB) or elsewhere (Arab Gulf countries or European markets…).

2nd step: Before calling CFI or your provider of choice, you must clear your mind on how much you will allocate funds as a 1st investment. I decided to invest a small amount from my saving that I would not mind if I lost it all, given the risks and my humble experience managing assets. I opted for $400. You can go for far less like $100 or just $50. The good thing about CFI is that they do not set any minimum amount, you will be free to keep your account null ($0). Plus, CFI does not charge any commission when you deposit money in your CFI account.

3rd step: You must have one of these 3 options:

  1. A bank account.
  2. Debit/Credit Card.
  3. A CFI Card by G2P.

Any of these 3 options would allow you to fill out a CFI trading account.

I use my “fresh” (a ridiculous adjective that banks use to describe post-October 2019 dollar account! As if the pre-October 2019 dollars were rotten!) dollar account via a linked debit card to deposit my money in my CFI trading account.

I deposited $400 the 1st time. I hesitated to transfer more, but I ended up adding another 150$, for a final total of $550. My initial investment. As of June 2023, I was at $2,000.

4th step: Call CFI Lebanon on 01 333 525 or your trade provider of choice. The relationship manager (customer service) will reply from Monday till Friday during normal working hours (8 am till 3 pm). Introduce yourself as someone without an account who would like to learn more about the account opening process.

What are the required documents to expect?

  1. Your Identification card or your passport. It should have your recent photo.
  2. Certificate of residency from the “mukhtar” or the invoice from “Electrécité Du Liban” or “Ogero”. Any official paper from the government that proves your address residency in Lebanon.

Both documents are required for their due diligence.

You will have to set an appointment to present your documents. Their offices are at the G20 Tower on Tahweeta Highway, Beirut.

5th step: Think ahead of all your questions. At the appointment, discuss with customer service your concerns. By being transparent and clear with the relationship manager, he or she will be able to propose you a suitable trading account.

For my part, I asked about the fees. For any transaction on stock or ETF, I pay $1. When I bought a Southwest Airlines stock, I paid $1, and when I will sell it back, I will pay another $1.

I also asked about trading exchange-traded Funds (ETFs).

They proposed me a free swap account (NO tiny fees on ETFs and stocks, which are held for several days, months, and years in your portfolio ). The stock markets that I can trade in are all in the US which are NYSE and NASDAQ. You can opt for other countries such as England or the Arab Gulf countries. I earn the paid dividends on the stocks and ETFs that I hold.

Customer service will scan your documents. Then, you will have to sign the opening contract (Terms and Conditions), and the W-8BEN (due diligence to fill and sign). Be sure to request a copy of the signed contract for your records. If you leave without the signed copies, pick up the phone ASAP to get them!

Within 24 to 48 hours, your account should be set up and ready for use.

What to do with your new account?

Before buying (“going long” in Wall Street jargon) a stock, it’s essential to conduct a careful analysis of the company’s fundamentals. However, if you don’t feel comfortable reading financial statements due to a lack of background in Finance, Economics, or Accounting, and still wish to benefit from potential gains in stocks, here are some recommendations:

My best advice: Invest time in teaching yourself to read financial statements. Dedicate three months to regular study, focusing on the industries and companies that interest you. Additionally, seek guidance from a financial professional who has a track record of delivering consistent and reasonable returns. You would ask what is a reasonable return?! Honestly, it varies according to periods and national markets. However, if you are like me that hate vague answers and want some percentage with explanations. Here are some rates based on empirical prices:

Around 10.5% per year in the US stock markets, around 6.6% in the European stock markets, and sometimes way less for the past decade (End of July 2013 till the end of July 2023)! Why those 10.5% and 6.6%? aren’t they arbitrary? Don’t they seem a bit too random? My explanation is embedded in my less recommended advice.

My less recommended advice: For beginners who do not want to study financial statements and prefer making decisions independently while being prepared for price fluctuations, a common solution is diversification.

Diversification means not putting all your eggs (investments) in the same basket. Spreading your investments across multiple baskets (stocks) makes it harder for any negative event to severely impact your overall savings. Unless a dangerous earthquake or catastrophic event (systemic risk = unavoidable general risk) affects all your investments, your savings should remain relatively safe.

However, some skeptics would (rightfully) question the effectiveness of diversification in the context of stock markets. Since the inception of stock markets (Amsterdam in 1611), the overall trend of market indexes has been upward. Major indexes, such as:

  1. Dow Jones Industrial Average (including the 30 US companies).
  2. S&P 500 index (comprising the 500 largest US companies).
  3. Russell 2000 index (comprising the 2000 US companies of small capitalization).
  4. NASDAQ Composite (includes almost all stocks on the Nasdaq stock exchange, that is more than 2500 US companies).
  5. FTSE 100 (Financial Times Stock Exchange 100 Index includes the highest 100 UK firms by market capitalization) on the London Stock Exchange.
  6. DAX index (including the top 30 German firms till 2021, then expanded to include the top 40 German firms) on Frankfurt Stock Exchange.
  7. CAC 40 (including the top 40 French firms) on Euronext Paris.

They have shown positive trends over the long term. While they may experience declines during crises like the subprime crisis in 2008-2009 and the COVID-19 pandemic in 2020, they have historically recovered.

NB: PAST PERFORMANCES CANNOT BE TRUSTED AT 100% AS A BASIS FOR FUTURE PERFORMANCES. You will find this remark in tiny footnotes on most asset/wealth management firms’ sites, but here you are not on any site, so you are on the territory of a stoic who hunts charlatans, so you read it in capital letters.

Thus, investing in a long list of stocks constituting an index allows you to benefit from the index’s overall performance, which tends to be favorable over the long run. For example:

  1. The Dow Jones index returned an annual compound rate of 9% over the last 10 years (from the end of July 2013 to the end of July 2023).
  2. The S&P 500 index returned an annual compound rate of 10.49% over the last 10 years.
  3. The Russell 2000 index returned an annual compound rate of 6.69% over the last 10 years.
  4. The NASDAQ composite index returned an impressive annual compound rate of 14.54% over the last 10 years.
  5. FTSE 100 Index returned a timid annual compound rate of 1.51% over the last 10 years.
  6. The DAX index returned an annual compound rate of 6.94% over the last 10 years.
  7. The CAC 40 index returned an annual compound rate of 6.36% over the last 10 years.

Most investors check these indexes (benchmark) across markets and periods to evaluate if a portfolio is beating the market (returning a higher annual compounding rate than major indexes). Indexes are considered as a reference of what an ordinary “reasonable” return should be.

For example, mutual funds use the S&P500 and the Russell 2000 as respective benchmarks in investments in large-cap and small-cap firms.

However, there are limits to such criteria which I will elaborate on in further articles (Hint: Survivorship Bias).