What is a Trading Account? Features and Benefits

A trading account is provided by the stockbroker, but a demat account is opened with a depository via a stockbroker. A depository is an organisation that holds and manages financial securities on behalf of investors in an electronic form. In India, only two depositories are functional, National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).

In short, we can say that the trading and account demat facility combined is provided by the stockbroker. But the demat account is managed by the depository only, in which brokers have no control over it.

Working of a Trading Account

The primary purpose of a trading account is to facilitate the buying and selling of securities. It is interconnected with the investor's bank account and demat account. Before buying any securities from the trading account, the investor needs to add funds from a bank account to the trading account.

The balance visible in the trading account can only be used to buy securities; this account balance is different from a bank account balance.

• When an investor places a buy order, the transaction is completed within microseconds if sellers are available. The amount is debited from the trading account, and the purchased shares are credited.

• In India, the T+1 settlement cycle is followed, which means shares purchased today will be credited to the demat account on the next business day.

• When an investor sells their shares, the same process is followed, but in this amount intrading account is credited, and shares from the demat account are debited.