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What is a trading account?

 

What is a trading account?

As you probably know, demat account is essential for holding your securities in today’s digital age. But note the careful use of words! A demat account, while it may allow you to hold your securities, will not allow you to ‘transact’ - that is, buy or sell securities. For that, you’re going to have to open a trading account

Objectives of a trading account

A trading account is mainly known to facilitate multiple objectives that are essential for all types of trading - right from helping you manage expenses to keeping a careful control of your choice of transactions. As the name suggests, a trading account helps customers trade in securities.

Additionally:

  • A trading account helps the broker or the investment dealer to keep track of progress by comparing the present figures with those of the previous trading year.
  • The gross profit percentage on net sales (gross profit sales) can be easily determined by the trader. The trader or the broker can keep a track of the gross profit and determine the profit percentage that you’ve gained on transactions. The gross profit should be adequate enough for indirect expenses.
  • You can conduct proper planning and research to improve the results of your investments made through the trading account, thanks to the vast array of data available to you.
  • Your broker can keep a track of the stocks at the open and end of a particular trading day.
  • The stock turnover ratio can be determined from your trading account. This rate can be used to measure the failure or success of the business.

How do you open a trading account?

While a trading account is needed to buy or sell financial instruments, the investments you hold as an investor are stored in a digital depository called a demat account. A demat (dematerialised) account is just like a locker used to store valuables, only that it is an e-locker that holds your investments. Thus, you need a demat account, along with a trading account, to store investments. A demat account can be opened along with the trading account.

You can open a trading account with any broker (independent or bank subsidiary) registered with the financial exchange in which you want to trade. Before choosing a broker, you need to consider the following:

  • The services you need. For example, some brokerages offer investment advice/analysis in addition to the trading facility.
  • Brokerage commissions/charges - Charges vary with different brokers. Also, brokers may charge based on number of trades or on amount of shares traded. Some brokerages require you to hold a minimum balance in your trading account.

Research brokerage firms until you find one that offers services you need at a cost that benefits you the most. Also, make sure that quality of services offered is good.

After you have decided on a brokerage house/firm, you're all set to open a trading account.

Application procedure

  • Apply online at the brokerage website with which you want to open a trading account or make a call.
  • Some brokerages allow you to submit an online application while others may send an agent to your address.
  • You need to fill up an account opening form along with a Know Your Customer (KYC) form.
  • Attach identity proof (PAN card, Aadhaar) and address proof (Passport, driver licence, voter ID etc) and submit the application.
  • You need to link your bank account to the trading account for convenient transfer of funds. This can be done by providing bank account details in the application form with the attachment of a cancelled cheque.

Your trading account along with a demat account (if you don't already have one) is created. The trading account login details will be sent to you in a few days.

You can trade now by logging into the e-trading platform offered by the brokerage or by making a call to your broker.

Objectives of a trading account

A trading account is mainly known to facilitate multiple objectives that are essential for all types of trading - right from helping you manage expenses to keeping a careful control of your choice of transactions. As the name suggests, a trading account helps customers trade in securities.

Additionally:

  • A trading account helps the broker or the investment dealer to keep track of progress by comparing the present figures with those of the previous trading year.
  • The gross profit percentage on net sales (gross profit sales) can be easily determined by the trader. The trader or the broker can keep a track of the gross profit and determine the profit percentage that you’ve gained on transactions. The gross profit should be adequate enough for indirect expenses.
  • You can conduct proper planning and research to improve the results of your investments made through the trading account, thanks to the vast array of data available to you.
  • Your broker can keep a track of the stocks at the open and end of a particular trading day.
  • The stock turnover ratio can be determined from your trading account. This rate can be used to measure the failure or success of the business.
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