Trading Authorization: What It Means, How It Works

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What Is a Trading Authorization?

Trading authorization refers to the power entrusted to a broker or agent by a client. It dictates the actions an agent may perform, such as buying or selling. This can be similar to power of attorney and is often discussed when an investor engages with a new financial advisor or broker. In simple terms, trading authorization refers to whoever is given access to trade on behalf of the investor and their permissions.

How Trading Authorization Works

Trading authorization levels allow an investor to give access to a third party for trading on a designated account. It becomes a consideration when an individual engages with a financial professional for advisory services. An individual may grant access to established investment accounts or open a new account with designated access.

There are two types of trading authorization levels: limited and full. Establishing these levels requires the primary account holder’s consent through a documented agreement.

Trading Authorization Levels

An individual can grant a third party limited or full trading authorization.

Limited trading authorization: This allows a broker or advisor to place trades with funds held in an investment account. It gives them the ability to act on profitable trading opportunities on behalf of the primary account holder.

Full trading authorization: This is the broadest authorization available. It can also be referred to as power of attorney. With full trading authorization, the agent can perform all account activities and access and withdraw funds.

Authorization Processes and Procedures

Trading authorization documentation is common with brokerage firms. Firms like Edward Jones and Morgan Stanley offer clients the option to designate trading authorization to an agent. Authorization can be given to a broker within the same firm or to an unaffiliated third party. It can also be given to a family member.

Authorization processes and procedures vary across brokerages. Most firms have a trading authorization form available through their client portal. Investors can authorize an agent by filling out the required documentation and following the firm’s submission process. The firm will confirm that trading authorization has been established, allowing the agent to act on behalf of the client.