Trading Account: Overview, Types and How To Open a Trading Account

Last Updated on Feb 25, 2022 by Sankeeth Sunny

If you are connected to the stock market, you must have heard about trading accounts. Often, a trading account is a day trader’s main account. Trading accounts are used to buy and sell equity shares regularly. As the internet is taking over every aspect of the world, the older outcry stock exchange system has now also changed to online transactions. So in order to place orders, you can open a trading account, and with the help of a registered stock market broker, you will be able to trade smoothly. 

This article covers: 

• What is a trading account?
• Demat vs trading account
• Types of trading accounts 
• Advantages of a trading account 
• How can you open a trading account? 

What is a trading account?

A trading account is essentially an account that you can use when you transact in securities. If you have assets that you want to sell or buy, then you can do so very easily and seamlessly with a trading account. The process is not only convenient but also secure and helps invest in stock markets without much hassle. 

Before the digitization era came along, investors traded through systems where they would use verbal communication or hand gestures. But now, thanks to the internet, things are much easier and more accessible. 

Demat vs trading account

Demat accounts allow you to store your shares, bonds, ETF, etc., electronically, whereas a trading account provides you with the interface to buy and sell securities. 

Demat shows you your entire possession of shares and securities at any given point, whereas trading accounts reflect your total transactions.

For investors, a trading account acts as a bridge between your Demat account and bank account. If you want to buy shares, you can do so via your trading account. This transaction gets processed in the stock exchange. 

After it is done, your Demat account will be credited with the number of shares you bought, and the sum of the money will be deducted from your bank account. When you want to sell something, the reverse of this process takes place. You choose the number of shares you want to sell and post the sell order via your trading account. When the transaction is completed in the stock exchange, the same number of shares will be deducted from your Demat account. The proportionate sum of money for those shares will then get credited to your bank account. 

Types of trading accounts 

There are mainly two types of trading accounts, and you can choose one according to your needs: 

Standard trading account

Also known as a securities trading account, through this, you will be able to trade equity, EFT, mutual funds, F&O, currency futures, and intraday trading plus delivery. If you are a short-term investor, you can use this trading account to invest your funds more frequently. 

Commodity trading account

If you plan to trade commodities such as crude oil, gold, silver, or copper, you have to open a commodity trading account. To open a commodity trading account, you will need a commodities broker. With the help of the broker, you will be able to use your commodity trading account to trade commodity futures. This account does not need to be linked with a Demat account. 

But always remember that one investor can open only one trading account through a broker. So in order to open multiple trading accounts, you will also need multiple brokers. 

Advantages of a trading account 

There are many advantages to a trading account. Here are a few:

• A trading account will bring all your investments to a single platform. You can access all your exchanges through this one account. The process becomes fast and hassle-free. 
• Online trading platforms value their customers and thus provide round-the-clock support. You will always be able to connect with their team for inquiries and guidance. They can also send you customised push notifications based on your investment priorities. 
• Since the process is online, transactions through these accounts are always seamless. You do not need to be present to buy or sell stocks. You can do so from the comfort of your home. 
• Through a trading account, online trading comes to your doorstep. All the app-based trading platforms ensure that you can access your account through any device of your choice. 

How can you open a trading account? 

If you want to invest in securities regularly, then you will need a trading account along with your Demat account. In India, you will need proof of identity, address, and income. After that, you will need to find a broker according to your investment requirements. Make sure that you hire someone who values your time and responds accordingly. You also need to find a trading platform that has a smooth and user-friendly interface so that you can ease into the process. Next, you will need to fill out a form to open a Demat account and also a KYC form. You can do both of them online or offline as per your comfort. 

After data verification is done and all the documentation procedures are complete, you will receive all the details about your trading account. With that finished, you will be able to trade in the stock market. 

Conclusion

Trading accounts are an integral part of online trading. They act as a bridge between your personal and Demat accounts. They also enable you to conduct trades from the comfort and safety of your home. If you are a day trader who buys and sells equity frequently, getting a trading account is the best option. It offers smooth and safe online transactions, and you will be able to invest in the stock market without worry.