Table of Contents

What is Trading Account ?

Trading Account is used for the purpose of buying and selling securities like stocks in the share Market. Earlier a buyer and seller of stock used to trade in securities in an open system with physical stocks. Now that the stocks and securities are dematerialized the trading scenario has been totally changed. Now the buyer and seller have to open trading account with a stock broker who will be trading the stocks or securities on their behalf.

 Stock brokers are the members of the stock exchange where they will be selling and buying your shares Each trading account refers to a unique identification number which helps in performing the trading on an online platform.  Before going into details of open trading account let us understand basics.

  • When you open demat account online you can only hold those securities but you cannot transact in those securities unless you have trading account. Opening trading account is must for investing in share markets.
  • After opening trading account helps you invest in various types of investment securities such as stocks, commodities, derivatives, mutual funds, ETF’s, etc. It also helps in maintaining your cash positions and other transactions.
  • Opening a trading account will help you in gathering knowledge about how the investment classes work, you can get access to research material provided by the brokers which might help you in allocating the funds for investments.
  • Trading account lets you play with risks by trading and investing in riskier assets for higher returns. Trading account is usually used by traders to benefit from the risks arising out of the speculation of asset prices.
  • Apart from riskier bets trading accounts are also used for long term investments in low riskier assets like mutual funds, stocks, ETF’s, etc.

How to open trading account?

Opening trading account is not a cliché or complex process these days, with the digitalisation many processes are omitted or overcome easily. However, there are few things which you need to be given importance while opening trading account.

  • Choose a well-known broker who will be having sound digital infrastructure and has delivered very well in past few years in terms of performance and process of trading.
  • A good digital infrastructure will help in getting your trades and investment right. Also, it will be helpful in getting good recommendations, trading strategies, etc.
  • Compare the brokerage charges, processing fees, etc with other brokers too. Each of them will be having different charges, compare those charges with the benefits they provide.
  • After you have chosen the broker, its halfway done for you to open a trading account. Now fill the KYC form given to you by your broker which can be offline or online.
  • Along with the form you need to attach the required documents like Pan card, bank statement, passport, voter ID, etc. Guidance will be provided by the broker on the documents required.
  • Once you have submitted the form and required documents the verification process will take place and you will be provided with account details of the of your trading account.

Benefits and Features of Trading account

Now that you have got an idea about trading account opening process and what is trading account, let’s get to know more about trading account, its objectives benefits and features.

  • Primary objective of trading account is to help you manage your transactions yourself and help you trade on your own. This also lets you manage your cash and expenses during trading.
  • After that trading account helps you keep track of your investments and their status on real time basis, which helps you in taking decisions on the risks taken.
  • Trading account is process where you can buy sell your securities for the benefit of generating returns. Trading account enables you to earn more than what just holding cash would give
  • Essentially trading account and demat account are the two key drivers of wealth creation for an investor. One cannot generate returns with just demat account, it needs to be accompanied with trading account for gaining out of stock market.
  • Online trading account is an added benefit and enables you to trade yourself anywhere in the world. This gives opportunity to test your own skills and knowledge about investing in the market
  • Trading account also lowers the investment costs with lower charges and processing fees with various types of brokers providing lower charges on trading.
  • Features of trading account varies on the type of broker you choose. Traditional broker offers you wide range of services with variety of investment options, add on services and support. While a discount broker provides you the trading platform with is technologically sound and eliminates perils of traditional trading systems.

How Trading Account works?

Trading account is an essential for trading or investing into stock markets. It also enables you to trade in capital markets and earn returns out of it

  • Trading account is a link between you as investor and demat account where in you buy and sell shares with the help of trading account only.
  • The trading account is linked to your demat account in which you can credit the money or capital you wish to invest in the market. The money is credited into the account through bank.
  • The broker to whom you have opened trading account is member of stock exchange through which you will be investing into the capital markets.
  • An investor is willing to buy a certain quantity of shares of A company. He places an order for the same on the exchanges through brokers terminal. Then the exchanges process the order and the stocks gets credited into your demat account in T+2 (trading+ 2 days) and the amount gets debited from the account.
  • The stocks, ETF’s, mutual funds all have different settlement dates as per SEBI guidelines and those are changed accordingly. For e.g If you are buying a stock the stock will get credited into your demat account in 2 days from the day of trade, while for mutual funds it is more.
  • The short-term instruments do not have such long settlement time considering the nature of the instruments.
  • Further, with the online trading system investor can trade using his mobile phone through the application provided by the broker.

What is the eligibility criteria for opening trading account?

  • Trading account opening procedure has become much easy in today’s age with flawless integration of information and data, which helps the process expedite easily.
  • One needs to have demat account prior opening trading account or can be opened with trading account also. One can open only demat account but cannot open trading account alone. He needs to have demat account.
  • Demat account plays role of treasurer in this process where all your stocks and other assets will be hold, while trading account is a mean to acquire those assets.
  • There are usually two type of process for opening trading account first is physical paper form and second is using KYC.
  • In first process a person has to fill up the form with the mentioned details and attach the required documents as below
Aadhar card, driving license, voter Id
Light bill of you address, Passport
Income statement, income tax return
Bank account statement
PAN Card
2 passport size photos

 

After submitting above details and the verification the account will be opened within weektime.

  • However, one can overcome such clumsy process with paperless and much faster process. It is by way of using Aadhar based E-KYC system.
  • In this process you need to have soft copies of all the above-mentioned documents and the form can filled digitally and will be verified using Aadhar based e- KYC network.
  • Once the e-KYC process is complete you can upload the documents as mentioned and wait for the verification.

What are the documents required for opening trading account?

  • Documents are crucial part of opening trading account online are various types of proofs such as identity, address, income, etc. Let's check it one by one.
  • Proof of identity- Pan card, Aadhar card, voter id, driving license, passport, other valid government issued document.
  • Proof of Address- Light bill, passport, aadharcard, voter id, ration card, driving licence, other utility bills
  • Proof of income- Income tax return, income statements, bank account statements for last 6 months, Net worth certificate, salary slip, form 16.
  • Proof of corresponding bank account- Cancelled cheque, Bank passbook first page with name and IFSC code.

Importance of having trading account

  • The days when an investor used to call a broker or trader to take position in the markets are diminishing quite significantly, only because of trading account and its expanding presence in investing world.
  • Trading account has enabled investor directly place order on his own through online trading platform.
  • Trading account has totally changed the trading scenario in the Indian capital markets due to such easy access to investing and trading techniques. More and more investors are now becoming self-sufficient in investing and trading with the help of research and knowledge provided by the brokerage houses.
  • Trading account is key to your wealth creation and has resulted in enormous wealth creation for many investors.

What are types of trading account?

 Trading account is used to buy various types of securities involving various types of risks and risk-taking capacity of the people also varies accordingly. Hence, there are different type of trading account for different risk-taking people

  • Cash – In this type of trading account investor has to deposit cash into the demat account and can buy the securities with available amount. Here the person can buy only for equities only.
  • Margin- This type of account is useful for taking extra risk by borrowing funds from the broker at margin and buy securities. The margin can be settled by depositing cash into the account later. Usually these types of account are opened by high risk-taking investors.
  • Commodity- Commodity trading account is purposefully used for trading into commodity prices and gaining the benefits arising out of it. The risk involved here is of moderate range.
  • Derivatives- Share derivatives are usually looked by high risk-taking investors or traders who trade in such highly volatile derivative instruments

What is difference between trader and Investor?

  • As said earlier the key difference between a trader and investor is the duration of their investment in any security they hold.
  • A trader buys securities at early hours of market and sells it in few hours and sometimes on next day itself, if the target of investment is achieved. Whereas an Investor buys the securities and hold it for longer term to create wealth from it.

 

Who is trader?

A trader is person who trades in the stock market for his own capital or for institution he works for and makes them profit out of short-term investments.

  • He uses trading strategies formulated either by him or by an expert to spot the right opportunity of getting returns.

 

What is difference between a Demat account and trading account?

  • A trading account is used to place orders in the stock market, where as a demat account is used to hold those stocks which you want to buy or sell.
  • A demat account will be used as bank account where stocks will be credited when you buy it and debited when you sell it.
  • Demat account acts as a treasury for an investor and hold all his investments in stocks, mutual funds, commodities, derivatives, bonds etc. Trading account is mean through which all the above securities are acquired and traded.
  • One can have only demat account for holding securities but one cannot open trading account.

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