How to trade using a trading account

Trading Account vs Demat Account

A trading account is for buying and selling financial instruments, but the actual investments remain in a digital depository referred to as a demat account.

A demat account acts as an e-locker to secure your financial assets. Most investors open a demat account in addition to their trading account to help manage their investments more efficiently.

Application Process

Opening a trading account is a simple process. Investors are able to apply online through a brokerage website or can speak to the broker directly. The application consists of:

Once processed, the trading account will be established along with the demat account if you do not already have an existing one. Login details for the e-trading platform should be sent to the investor within a few days.

Making a Trade

When you start trading, you will send cash from your linked bank account to your trading account. Investors can place different types of orders:

When placing an order, you indicate the type of order, price, and quantity of shares or units. Another market participant will then accept the buyer's offered price, the trade will be executed, and cash and shares will be exchanged.

Brokers may also provide margin trading, where they will lend the investor some of the funds for short-term trades, especially intra-day trades. Investors can trade something other than equity as well, such as commodities and derivatives.

FAQs

What is a trading account?

If you wish to buy or sell an instrument in the financial markets, such as shares, mutual funds, commodities, or derivatives, then you need a trading account.

What is the difference between a trading account and a demat account?

A trading account is necessary for buying and selling a security, while a demat (dematerialised) account holds the security electronically, much like a locker holds your valuables.

How do I open a trading account?

To open a trading account, you need to reach out to a registered broker or bank subsidiary and open the account online. Generally, this means filling out an account opening form with your requested KYC details and linking the account to your bank.

What documents do I require to open a trading account?

To open a trading account, you need to provide identity proof (PAN card, Aadhaar), address proof (passport, voter ID, driver’s license), and your bank account details, usually in the form of a cancelled cheque, to link your bank account.

What should be the criteria for selecting a broker?

Select a broker based on the services offered, brokerage charges and the quality of service. Some brokers offer research and investment advice, while others offer low-cost trading. Be sure that the broker is registered with the stock exchange.

How does trading work through a trading account?

Once the funds are transferred to your cash account from your bank account, you can place either intra-day or delivery orders by specifying the price and the quantity of the shares. Your trade is executed.

What is margin trading and how does it work?

Margin trading provides investors with the ability to finance a portion of the total value of a trade by borrowing from the broker, typically for short-term or intra-day trades. Margin trading can be extremely beneficial to boost purchasing power, but it also increases risk due to leveraging.