A trading account is a financial tool used to trade stocks, options, commodities and futures. It would help to choose the right way to open an account. What kind of trading account can be opened in the Indian stock market? There are five types of accounts that you can open to start trading on the Indian stock market.
NSE or BSE? F&O or Futures? OMCs or Derivatives? Call or Put? How do you decide which trading account to open if you are a newbie in the stock market? We will help you decide what type of account to trade for your first participation.
What is a Trading Account?
It is a trading account where you can buy, sell or trade in stocks, commodities, futures and options. To start investing in the stock market or even become a trader, you must open a trading account. You can open your account with any of the brokers in India, but you need to be aware of certain things before opening an account.
This trading account allows investors to trade independently without paying brokerage fees. It also allows you to make profits from your investments.
You can invest in any asset through your account. There are no restrictions on the type of assets you can trade with this account. Professionals who want to trade in the financial markets use a trading account example. Still, it can also be used by amateurs who want to try their hand at market speculation.
Types of Trading Accounts
There are different types of trading in the share market through various trading accounts. These are:
Regular Trading Account
This is the most commonly used trading account in India. It allows you to buy and sell stocks, commodities, indices and currencies using your Demat account. You can also sell short with this type of trading account.
Margin Trading Account
A margin trading account is buying securities with borrowed money from a broker. Margin Traders use leverage (borrowed funds) to increase their profits and losses. They can also use margin to go short on their positions (sell a stock before buying it).
A margin trading account allows traders to trade on margin, which means they can borrow money from a broker to buy more shares than they could otherwise afford.
Demat Account
A dematerialised account is a trading account where securities are electronically held by a depository rather than being physically stored by the investor (as in the case of physical settlement).
The depository holds the securities on behalf of all its customers who have opened dematerialised accounts with it and are maintained on a computer system called Central Securities Depository (CSD), which works as an online registry.
Cash Account
The cash account is a trading account where you can deposit your money and then use it to make trades in any currency pair, stocks, options, etc. You can also lend this money to other traders by placing the same collateral loan for short-term periods like overnight to a 1-week maximum at a specific interest rate (this may vary from broker to broker).
In such cases, you don't need to know about technical analysis. The capital requirement (minimum amount) for opening a trading account doesn't require much, so anyone can easily start trading with the trading account without hassle.
Equity and Derivatives
Equity or stocks are India's most popular investment and trading account forms. Hence, you will find many brokers offering equity trading. An equity trading account allows you to buy and sell stocks anytime during the day or night.
You can also short-sell your stocks for profit or loss depending on whether the stock price goes up or down during that period when you have sold it short. Derivatives include options, futures, swaps, etc., allowing you to take speculative positions in the market without physically buying or selling anything!
Commodity
Commodities refer to raw materials like gold, silver, oil, etc., traded worldwide! These commodities are traded like stocks but have unique characteristics that make them more volatile than stocks! Commodity traders can earn big profits if they guess right about future prices, while commodity producers may lose big also.
A commodity trading account allows you to trade in commodities such as gold, silver, oil, natural gas or any other commodity which has a physical form and can be bought or sold on an exchange.
2 in 1 Trading Account
2 in 1 trading account is the most common type of account that most brokers offer. This type of account is meant for retail traders with small trading capital who don't want to deal with multiple accounts. You can trade equity and commodity while handling your banking functions in this type.
3 in 1 Trading Account
3 in 1 trading account is also a full-fledged or advanced trading account. This type of account is meant for professional traders who deal with a large amount of money, have a deep understanding of markets and are comfortable managing multiple accounts simultaneously.
These traders need not worry about slippage and position management as they can access all possible instruments in one place through one account- trading, banking and Demat.
Options Account
This is the most common type of trading account in India. An options account allows you to buy and sell equity derivatives, such as index options and stock options. A margin is required to be maintained in this type of account.
Options accounts are opened by investors who want to trade in options contracts. These accounts allow you to buy or sell options on stocks, indices, currencies or commodities such as gold or silver.
Wrapping Up
In summary, there are many benefits to opening a trading account. It will help you learn the ropes of the market and understand how trading works. Plus, it could get you off to an early start towards financial freedom. And so, if you're in the market for a new account and wonder about the trading account is which type of account, now is probably a good time to make your move.