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The commercials on TV make it seem so easy – open your investing account, begin trading that day, and in no time, you’ll be able to retire a millionaire. Well, online investing is easy – but it isn’t quite that easy.

The online companies don’t tell you that there’s an application, and an account approval period that can be rather frustrating for a newcomer to online investing.

The Online Investing Account Application

Common sense tells you that online companies are going to need your name, address, phone number, etc., but you might be surprised at just how much information they do need to know.

For example, they’ll need your birth date, social security number, employment information, liquid net worth, total net worth, annual income, tax bracket, and much more.

Why do these online investing companies need so much information? One reason is that they are required by law to verify your identity. Following the events of 9/11 and the passage of the Patriot Act, the government has called upon financial service companies to help stem the flow of money to terrorist groups.

In practice, this is nothing but a big hassle for the 99.99+ percent of people engaged in investing who have nothing to do with terrorism. It depends on your political persuasion as to whether or not it’s all worth it.

Regardless of your political views, the fact is that the Patriot Act is the law, and because of it online investing companies will go to great lengths to verify your identity. For example, if you’re a married woman who has recently taken her husband’s surname, investing companies might delay the approval of your account.

You will have to prove to them beyond a shadow of a doubt that you are who you say you are, and this is sometimes more difficult than you would presume.

Different Levels of Authorization For Online Investing Accounts

Did you know that your credit history comes into play when you want to open an online account? This is because some forms of investing pose a financial risk to online investing companies. For example, when you buy on margin, you are borrowing money to buy stock.

If you have less than stellar credit, online companies may deny you the use of margin. Furthermore, shorting stocks (selling stocks which you don’t own in the hope that they will decline in value, and then buying them back at a later date) also poses risk for online investing companies.

What happens if you short 100 shares of a stock that’s trading at $40 and it goes to $200? Do you have $200,000 to buy back the stock? If not, then the investing company loses, so if you have poor credit or limited liquid net worth, you may be denied the right to sell short.

More troubling is the idea that online investing companies can limit you from doing things that don’t directly pose financial risks to them. For example, buying call and put options poses no risk to an online broker, but the company may still deny you the right to buy options on the grounds that you lack experience.

Why should the online company care? Because theoretically, you could sue them for not protecting you from yourself – blame the trial lawyers for this one.

Don’t Be Scared Off

The vast majority of people who want to open online accounts are able to do so with relatively little trouble. Some people, however, get a lot more of a hassle than they bargain for. T

he important thing is to be prepared to disclose a lot of information, and to wait while your account application is being processed. The more you know going into the situation, the less frustrating it will be.

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Part of the task we have is to make sure we fully understand the investment we are making and there are lots of different ones around that may be new to us.

One good example is an open ended investment company. These are worth looking into if you have an interest in the stock market and you want to follow up on that interest. The stock market is a complex place if you aren’t used to it, and an open ended investment company could be what you need to help you take that first crucial step.

This kind of investment is very similar to a unit trust as well, so you might see the two mentioned together. They are both referred to as ‘open ended’. This means there are no restrictions on the size of the investment, which comes from lots of different investors. There are differences though and it is important to understand what they are.

One key point to remember is that unit trusts are made up of units, hence the name. As far as open ended investment companies are concerned, you are investing in actual shares. This is true even though they are both concerned with the stock market.

You should also be aware that prices for both of these investment vehicles are worked out every day. Whereas a unit trust has both buy and ask prices, an open ended investment company will have just the one price. You might see this referred to as the single price, and it is the only relevant price you need to worry about.

Of course an investment of this nature is not the safest one you will ever come across. While they often provide good returns, there is never any guarantee that you will make a profit. Indeed, you could lose some or all of your money. This is not meant to scare you, but it is a fact and one that you should bear in mind if you are seriously considering investing in an open ended investment company.

Furthermore as is often the case with the stock market and related investments, this kind of investment should not be viewed as a short term venture. You need to be happy to sink the required amount of money into an OEIC, as they are also known, for several years.

This tactic means that any short term losses will hopefully be ironed out and made back again. The stock market does typically improve in this way over the long term, which is why an open ended investment company is worth considering as part of your overall investment strategy.