A trading account enables financial exchanges to identify trading entities and authenticate transactions. Since all trade on financial exchanges takes place online, it is mandatory for every investor to create a trading account. It is needed to trade in shares and other financial instruments like mutual funds, commodities, derivatives etc. Every investor has to create a trading account to be able to trade in financial instruments.
Key Points:
- A trading account is needed to trade in shares and other financial instruments like mutual funds, commodities, derivatives etc.
- You need a demat account, along with a trading account, to store investments. A demat account can be opened along with the trading account.
- Research brokerage firms until you find the one that offers services you need at a cost that benefits you the most. Also, make sure that the quality of services offered is good.
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.
Making a trade
- Transfer money to your trading account from your bank account.
- You can place different types of orders using your trading account such as intra-day orders (where stocks are bought and sold in a single market session), delivery orders (stocks you can hold as long as you like) etc.
- To place an order, select the type of order you want to place (intra-day or delivery), quote the price at which you want to buy or sell shares, the number of shares and submit on the e-platform or through a phone call to the brokerage.
- Once someone in the market accepts the terms of the offer put forth by you, a trade is made. Money and shares are exchanged.
- Brokerages also offer you margin, where part of the money for the trade is lent by the broker for short term trades (mostly for intra-day trades).
- You can also trade in instruments other than equity such as commodities or derivatives.
Wrapping up
- You need a trading account and a demat account to start trading in any kind of financial instrument. Financial instruments include equity, derivatives, commodities, mutual funds etc.
- You can open a trading account with any broker registered with a stock exchange where you wish to trade. You need to submit the account opening form along with Know Your Customer (KYC) details, identify and address proof.
- Link a bank account to your trading account to transfer funds for the trade.
- Place an order by selecting the type of order and quote the price and number of shares/units/lots you want to trade.
- A trade is made when someone accepts your offer.
Open a trading account today with Upstox for hassle free and seamless online trading experience with real time info and in depth analysis of market trends.