Trading Authorization

What Is a Trading Authorization?

Trading authorization refers to the level of power entrusted to a broker or agent by a client. Trading authorization dictates what actions an agent may perform, such as buying or selling. This can be similar to the concept of power of attorney and will often be 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 the behalf of the investor and what permissions they have.

How a Trading Authorization Works

Trading authorization levels allow an investor to give certain types of access to a third party for the purpose of trading on a designated account. Trading authorization typically becomes a consideration when an individual chooses to engage with a financial professional for financial advisory services. An individual may wish to grant this professional access to investment accounts that are already established or they may choose to open a new account with the intention of designating access.

Generally, there are typically two types of trading authorization levels, full trading authorization and limited trading authorization. Establishing these trading authorization levels requires the primary account holder to consent to the authorization through a formally documented agreement.

Trading Authorization Levels

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

Limited trading authorization: This type of authorization allows a broker, financial advisor or other designated agent to place trades with funds held in an investment account. Limited trading authorization gives a third-party agent the ability to act on profitable trading opportunities on behalf of the primary account holder.

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

Authorization Processes and Procedures

Trading authorization documentation is a common practice with most brokerage firms. Brokerage firms across the industry from Edward Jones to Morgan Stanley will all offer their clients the option to designate trading authorization to an agent. In some instances, trading authorization may be given to a broker of the firm while in other cases the agent will be an unaffiliated third party. Additionally, in some instances, trading authorization can be given to a family member.

Authorization processes and procedures for designating trading authorization will also vary across brokerages. Generally, most brokerage firms will have a trading authorization form found with other important forms and documents available through their client portal. Investors can authorize an agent by filling out the required documentation and following the firm’s submission process. Typically, investment firms will contact the client with confirmation that trading authorization has been established which allows the agent to begin acting on behalf of the client.