Before online trading, stockbrokers handled buying and selling orders for clients. With the advent of online trading services, investors can now independently execute orders online or by phone. Client instructions are automatically routed to the exchange through their stockbroker.
To engage in stock trading, opening a demat account and trading account are mandatory. A trading account is provided by a stockbroker that enables users to buy or sell securities. It is linked to the bank account to facilitate the necessary liquid cash for transactions.
In this article, we’ll learn about trading account, guiding investors on how to use it for seamless participation in stock trading effectively.
What Is a Trading Account?
A trading account is a specialised account held by a financial institution on behalf of an investor that enables the buying and selling of various financial instruments such as stocks, bonds, commodities, and derivatives. Its primary purpose is to provide a centralised platform for executing and managing trades efficiently.
Investors can maintain multiple accounts based on their trading strategies. These may include a margin account, a retirement savings account, a long-term buy-and-hold account for stocks, and a day trading account, among others. This flexibility allows investors to tailor their accounts to different investment approaches.
How Does Trading Account Work?
The trading account is interconnected with both the Demat Account and the bank account. Investors initiate trading by depositing funds from their bank account.
- When an investor places a buy order, and it is executed, the purchased shares are credited to their Demat Account.
- Order execution typically follows a T+2 schedule, with T being the day of the transaction.
- Crediting shares to the Demat Account occurs two business days after the transaction.
- If investors decide to sell their shares, the corresponding shares are debited from their demat account.
Types of Trading Account
- Equity Trading Account: Primarily for buying and selling securities, including futures and options trading. However, this account is unsuitable for subscribing to an IPO, trading in commodities, or taking stock delivery.
- Commodity Trading Account: Enables trading in commodities such as oil, metals, coffee, etc.
- Online and Offline Trading Accounts: Orders can be placed offline via phone or online through mobile apps or internet platforms.
- Two-in-One and Three-in-One Trading Accounts: Two-in-One accounts combine trading and Demat accounts. Three-in-one accounts integrate trading, Demat, and bank accounts for seamless fund and share transfers.
- Discount and Full-Service Trading Accounts: Discount accounts offer basic trading services. Full-service accounts provide additional services like research reports and stock suggestions.
- All-in-One Accounts: Comprehensive accounts allowing trading in stocks, commodities, mutual funds, SIPs, bonds, Gold ETFs, and IPOs.
Features of Trading Account
- Execute share transactions through phone or online channels.
- Access expert recommendations for top-performing assets across different categories.
- Receive regular market updates and free news alerts upon opening an online trading account.
- Utilise margin investing options to enhance exposure to various shares.
- Benefit from a high-speed trading platform for real-time stock market transactions without delays.
- Place orders during after-market hours using special facilities.
- Obtain expert research advice from an experienced team of analysts.
Benefits of Trading Account
- Empower investors to establish personal trading limits.
- Enables buying/selling of stocks, gold ETFs, Forex, ETFs, and derivatives.
- Easy setup with telephonic or online access eliminates the need for physical transactions.
- Provides insights into the relationship between gross profit and sales, aiding in measuring profitability.
- Reflects the ratio between costs of goods sold and gross profits, offering valuable financial insights.
Selecting the Best Trading Account in India
Selecting the best trading account in India involves considering various factors to align with your investment goals and preferences. Here are key aspects to evaluate when making your decision:
- Broker Reputation: Choose a broker with a solid reputation and a track record of reliability. Look for user reviews and testimonials to gauge customer satisfaction.
- Regulatory Compliance: Ensure the broker is registered with regulatory bodies such as the Securities and Exchange Board of India (SEBI) to guarantee adherence to financial regulations.
- Trading Platforms: Assess the trading platforms provided. Look for user-friendly interfaces, real-time data, and features like technical analysis tools. A demo account can help you experience the platform before committing.
- Fees and Charges: Consider brokerage fees, transaction charges, and other associated costs. Some brokers offer discount brokerage, while others provide additional services for a higher fee. Choose a structure that suits your trading style and budget.
- Research and Analysis Tools: If you rely on research and analysis, opt for a broker offering comprehensive tools, market insights, and expert recommendations to aid your decision-making.
- Customer Support: Evaluate the broker’s customer support services. Responsive and helpful support is crucial, especially during market hours when quick assistance may be required.
- Margin Trading Facilities: Check the broker’s policies, interest rates, and margin limits if you plan to use margin trading. Ensure they provide this feature and that it aligns with your risk tolerance.
- Mobile Trading Options: If you prefer trading on the go, check if the broker offers a reliable mobile trading app with essential features.
Procedures to Open a Trading Account Online
To initiate the process of opening a trading account online, follow these steps:
- Choose a SEBI-Registered Stockbroker: Begin by selecting a stockbroker with a valid SEBI registration number. This registration is essential for opening a Demat account. Consider brokers like Angel One, which offers Demat and Trading accounts to interested traders.
- Submission of Documents: Complete a ‘Client Registration Form’ provided by the chosen broker. Additionally, submit other necessary documents as mandated by SEBI, the regulatory authority for India’s securities market. This includes an Account Opening form and Know Your Client (KYC) documents, along with proof of identity and address.
- Verification Process: The provided details will undergo verification, which may be conducted through a phone call or an in-house visit by the broker.
- Account Processing: Once the verification is successfully completed, the broker will process the trading account. The investor will subsequently receive the account details.
Learn more about the specific steps for opening a trading account with Angel One.
To initiate the process of opening a Trading Account, it is necessary to provide the following documents:
- Proof of Identity: PAN Card
- Proof of Address: Choose one from Aadhaar Card, Passport, Driving Licence, Voter ID, or the last 3 months’ bank statement
- Signature on a white paper
- Bank Details: Any Bank proof (cheque or Passbook) containing the client’s name, account number, and IFSC code
- Income Proof: Choose one from 6 months’ bank statement, 3 months’ salary slip, net-worth certificate, Holding Report, ITR Statement, or Demat Holding Statement.
Ensure that all provided documents adhere to the specified requirements for a smooth account opening process.
Once an investor has opened an online trading account, they may place buy/sell orders at their own convenience, over the phone or online. Investors may find their trading details online, thus making a more informed decision about profitable trading. Empower your investment journey with Angel One – Open a trading account today for seamless, informed, and profitable trading experiences.
Who needs a trading account?
Anyone looking to engage in stock trading needs a trading account. It is mandatory for individuals interested in independently buying or selling securities on stock exchanges.
What are the types of trading accounts?
There are various types of trading accounts, including
- Equity trading account
- Commodity trading account
- Online/Offline trading account
- Two-in-one and three-in-one accounts
- Discount and Full-service trading account
- All-in-one account (Popularly used)
Each of the trading accounts caters to specific trading needs.
Is a trading account free?
Trading accounts typically involve fees and charges, including brokerage and transaction costs. The specific costs vary among brokers, and it’s important to consider these fees when selecting a trading account structure that aligns with your budget and trading style.
Who manages trading accounts in India?
The National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL) maintain and manage trading accounts in India. These entities are also entrusted with maintaining all Demat accounts, housing the shares and securities of publicly traded companies within the accounts.