Types of trading accounts

Types of Trading Account

Trading accounts are categorised based on multiple aspects. Let’s break them down one by one.

Based on Ownership – Who owns the account

• Individual trading account- This is the most common type, held by retail investors, owned by a single person. The account holder has complete control over all transactions and decisions.

• Joint trading account - This is opened by two or more people together, typically used by family members or spouses. It can be operated in two ways, either holder can operate (where any one person can trade independently) or all holders together (requiring consent from all account holders for transactions).

• Minor trading account- This is opened for individuals under 18 years of age. Minors are legally not allowed to enter into any contract and they cannot be signatories as well. A parent or a legal guardian operates the account on behalf of the minor. Once the minor turns 18, the account is converted to an individual account.

• Corporate trading account – This is opened by companies, partnerships or other business entities for trading securities. These accounts have nominated authorised signatory/signatories.

• Non-Resident Indian (NRI) account - NRIs can open either NRE (Non-Resident External) or NRO (Non-Resident Ordinary) based trading accounts with repatriation benefits. These accounts have specific regulatory requirements under FEMA (Foreign Exchange Management Act) guidelines.

Based on Trading Segments

• Equity trading account – Through this account, you can buy and sell shares in the cash market. This is the basic account type that most investors start with. You can invest in stocks for delivery or do intraday trading.
• Derivatives trading account – This account enables trading in futures and options (F&O). This segment requires additional approval from brokers as it involves higher risk and leverage. For this account, you need to show adequate income and trading knowledge to activate F&O trading.
• Currency trading account – Through this account, you trade currency derivatives like USD/INR, EUR/INR on exchanges. This segment is separate from equity trading and requires specific activation.
• Commodity trading account – To trade commodities like gold, silver, crude oil and agricultural products on commodity exchanges like MCX, you need a commodity trading account. This requires separate documentation and approvals.
• Mutual fund account – This is integrated with your trading account, allowing you to invest in mutual funds directly through your broker's platform. Brokers like Upstox now offer this as a bundled service.

Based on Tax Status

• Resident individual account – This is for Indian citizens residing in India, taxed according to standard income tax rules.
• Hindu Undivided Family (HUF) account – This allows HUFs to invest collectively, with tax benefits as a separate entity. Trust or Society account – This is opened by registered trusts, societies, or charitable organisations for managing their corpus funds.