What is a Trading Account? A trading account is where all the financial securities that you buy are held securely. It is mandatory to open a Demat account to participate in share trading. However, to trade in the stock exchanges i.e. buy or sell securities, you need a trading account as well. A trading account is connected to both Demat and bank accounts. Therefore, all the online transactions are recorded in the trading account itself.
What is a trading account?
Do you know what is a trading account? When you buy or sell a stock, the order is placed through a trading account. If you have purchased the stocks, the funds are debited from the trading account and the shares are credited to your Demat account in T+2 days. When you sell them, the shares are debited from your Demat account and the money gets fully credited into the trading account in T+2 days. You can open the Demat account online along with the trading account to avoid filing separate applications for these accounts.
What are the types of Trading accounts:
Different types of trading accounts depending upon the type of trading in which you participate are given below:
Equity & Derivatives Trading Account:
To trade in derivatives and equities, you need an equity and derivatives trading account. Only a trading account is enough if you want to trade in derivatives. However, a Demat account is also required for trading in equity delivery as it requires you to take the delivery of the stocks.
Commodity Trading Account:
Basic economic products like gold, oil, and agricultural produce are traded in the commodity market. To trade in these commodities, you need a commodity trading account.
Margin Trading Account:
A margin trading account allows you to take a particular trade by paying a fraction of the transaction amount. The remaining amount is provided by the stockbroker as a margin. This facility is known as MTF (Margin Traded Facility). You need to pay interest against the borrowed margin. If the interest rate is lower, you end up paying less, and therefore, it is recommended that you opt for a broker who provides MTF at an affordable interest rate.
If you want to open a Demat account first you have to understand different types of Demat accounts based on trading services are mentioned below:
Discount Brokerage Trading Account:
If you need basic trading services along with an online trading platform, you have to open a trading account with a discount brokerage firm. Discount brokers offer their services at a reasonable cost. Mostly, they offer a flat rate brokerage in which the brokerage fees are not determined as per the trade volume. Investors who trade frequently or participate in intraday trading usually prefer this type of trading account.
Full-service Brokerage Trading Account:
To get access to advanced trading platforms with multiple research and analytical tools, you should open a trading account with a full-service broker. However, they charge a high brokerage fee which is usually calculated as a percentage of the trade volume. Beginners prefer this type of trading account because they are unable to carry out market research on their own.
Advantages of having a Trading Account
These are the main advantages of having a trading account:
A trading account is a multi-investment platform as you can invest in different financial instruments from it. It provides you access to the commodity market, equity market, and derivative market and allows you to earn by investing in commodities, equities, derivatives, and other securities.
Access to value-added services:
A trading platform extends some value-added services to make your trading process easier. It includes research reports and market insights and services like loan against securities and MTF.
Notification alerts and updates:
You can set alerts for important news and updates related to the stock market to make the most of the market fluctuations. You can also set notifications for the stop-loss and targets that you have created for certain stocks.
Flexibility in monitoring & accessing the trading platform:
These days, you can access a trading platform through mobile, laptop, or any other digital device that can be connected to the internet via a browser. The trading apps provide you flexibility in monitoring your securities and allow you to trade or invest from any part of the world.
Funds can be transferred instantly from the bank account to the trading account. Also, you can complete the transactions online without the need of visiting the stock exchange physically. This not only saves your time and effort but also makes the trading process seamless.