What is trading account?

Before the advent of online trading, stockbrokers were in charge of placing orders to buy and sell on behalf of their clients. Thanks to online trading, investors can now place buy and sell orders at their discretion with a click on their phone. The client's broker immediately relays the client's orders to the market.

It is necessary to have a Demat account and trading account in order to purchase and sell equities in the financial market. Let us understand more about trading accounts. 

What exactly is a trading account?

Stock market traders or investors open a trading account with their stockbroker, which enables them to purchase and sell stocks and securities. The bank account that supplies the liquid funds needed to buy and sell stocks is linked to the brokerage account.

Depending on their trading strategies, investors are permitted to hold numerous accounts. There may be several accounts, such as a day brokerage account, a buy-and-hold account for lengthy equities or a margin account.

A trading account allows investors to purchase and sell financial securities as often as they like. the degree of trading volumes, the trading goal, and the risk associated with trading are some of the important characteristics that set a trading account apart from other savings and investments.

Basics of Trading Account

In essence, a trading account is used to make transactions possible, including buying or selling stocks, mutual funds, exchange-traded funds (ETFs), commodities, and other financial assets.

A trader may access different trading accounts with various brokers for various purposes. Traders use their brokerage accounts for the following:

● Day-trading activities

● Long-term investment

● Savings for retirement

● Planning for both education and health insurance

How to open a trading account?

You must have both a trading account and a Demat account in order to invest in securities. You can open a trading account with a brokerage firm in both ways - online and offline.

The steps for creating an online trading account are as follows:

● You must first choose a broker. The broker is required to comply with your requests in a timely manner. In the stock market, time is valuable. To save time, the user interface must be slick and clear. It is crucial that you choose the right broker at the onset of your trading career. 

● Next, evaluate the brokerage fees. Every brokerage firm levies a processing fee. 

● Contact a brokerage to open an account.

● The company will either send a representative to your home or place of business with the Know Your Client (KYC) and Demat Account Opening forms, or you might open your trading account online. To continue the procedure, you must fill out or submit those forms and provide all necessary documentation, including evidence of identity, proof of address, and proof of bank account (cancelled check or bank statement).

● You will be required to provide your personal information in order to verify your forms over the phone or in person.

● You will be sent the specifics of your trading account once the procedure is complete.

● You can now start making stock market transactions.

Differences between Demat and trading accounts

A Trading account is different from a demat account based on its functions and roles. The key differences are as follows:

Functions:

 A trading account is used to buy and sell shares or other financial assets, while a Demat account holds your financial securities in a dematerialised or digital form.

Nature: 

The nature of a Demat account is identical to that of a savings account. A Demat account enables investors to keep financial products disintegrated or electronic. When financial assets are sold, it is debited from the demat account, and when they are bought, the demat account gets credited. This resembles the way a savings account is operated. A trading account is needed to transact securities in the market. 

Key Roles:

A Demat account's primary function is to provide the security required in a trading account for share purchases and sales.

Time measurement:

A trading account is a flowing statement that reflects the different securities you hold over time, compared to a Demat account, which retains the financial securities you hold at any point in time. 

FAQs

Q. Why do you need a trading account?

A Trading account is used to buy and sell financial securities, such as shares, commodities, bonds, etc. in the market.

Q. What is the difference between a trading account and a Demat account?

A trading account allows you to buy and sell shares in the stock market, whereas a Demat account holds shares and other securities (such as bonds, ETFs, mutual fund units, etc.) in dematerialised or digital form.

Q. Are there any trading account charges?

It depends on the brokerage firm you choose. Many brokerages offer free opening of trading accounts. There may be Annual Maintenance Charges (AMC) for the trading accounts.

Q. What are the benefits of Trading Account?

● Single Point of Access

● Trustworthy information

● Customisation and notifications

● Flexibility

● Smooth transactions

● Evidence of income

● Evidence of identity

● Evidence of Address