A trading account is a type of account used to sell or buy assets. Account-holders can buy and sell within the same trading session. The trading account can be used for trading the investments account holdings like securities, cash, or bonds… This blog will explain,
- What is a trading account in the share market?
- What is the trading account and Demat Account?
- How to open a share trading account?
- Eligibility to open a trading account?
- Documents to open a trading account?
What is a trading account in the share market?
Consider you need to buy vegetables from the market by paying cash to the shopkeeper. Shop in the market is your trading account, where you buy and sell. Your vegetable bag is like your Demat account, where you keep the vegetable which you procured.
In the share market, shares are purchased using cash in a bank account through the trading account and shares are deposited in a Demat account.
- The broker is the shop keeper.
- The bank is the cash holder.
- Vegetables are shares.
A share trading account is used to place buy or sell orders in the stock market. The Demat account is like a bank account, where shares bought are deposited, like cash deposited in the bank account. A trading account can be an investment account consist of, cash, shares, or other holdings. We can’t hold the shares in the trading account for a long time.
What are the Trading account and Demat account?
The main difference between Demat and a Trading account is, Demat account is to hold shares whereas a trading account is used to buy and sell shares in the stock market in electronic format. A trading account is used to trade in the share market.
A trading account linked to a bank account and a Demat account. During trading, money is transferred to and fro from a bank account, and shares to and fro transferred to a Demat account. A trading account is used to sell your holdings in the market by withdrawing them from your Demat account.
Many newbies into the share market have the following 2 questions
1. Do I need both a Demat and Trading account, to trade in the share market?
If only for trading, no need to have the Demat account, but to hold the securities purchased through the trading account, a Demat account is needed. Most of the brokers provide a combined Trading and a Demat account.
There are many factors that need to decide the best trading account in India like trading charges, technological capability of the trading platform, customer support…
2. Can I have 2 trading accounts?
As per the rule, we can have multiple Demat accounts and multiple trading accounts with different brokers. We cannot have multiple accounts with the same broker.
If you are holding multiple accounts, for every Demat account we need to pay yearly charges as decided by the brokers.
How can I open a share trading account?
It is easy to open trading accounts as we have many brokers available in INDIA. Most of the nationalized banks also providing 3-in-1 accounts. 3-in-1 account means an account that is the combination of a Bank account, Demat account, and the trading account. Most of the discount brokers providing a 2-in-1 account, which means, an account that is the combination of a trading account and a Demat account and it can be linked to any bank account.
We can open the account online or offline. Now, most of the discount brokers are preferring the online account opening format and it is easy to do.
Step by step process for opening a Trading account.
Step 1: List out the brokers with whom we can open a share trading account.
.Step 2: Compare brokerage rates and the services they provide. Every broker charges certain fees for processing the order, some are in percentage, some are fixed amount. Select the broker as per our convenience.
Step 3: Start the process online or offline and complete KYC. Most brokers have an account opening link is available on the home page of their website.
Step 4: Upload all the relevant documents and photos. Most brokers have the option of online E-Aadhar verification and photo collection.
Eligibility to open a trading account?
18 years is the age limit in India, to open a trading account. Need to submit identity and valid address proofs to prove the age and residency along with the account opening form. Minors are eligible for the Demat account opening.
Documents to open a trading account?
Following are the documents needed to open a trading account in INDIA. The document checklist may vary from broker to broker. Below are the general documents, which are common to all brokers.
For ID proof :
- Aadhar card
- PAN card
To prove the Address:
- Aadhar card
- Voter ID
- Valid Driving license
For Bank proof:
- Bank statement of a linked bank account.
- Canceled Chequeleaf with IFSC code.
- Passbook of a linked bank account.
Trading account meaning, an account used for trading. In the share market, equities and commodities are traded through the trading account. To start with, it is ideal to open single Demat accounts and trading accounts with a single broker.
If you have a bank account, better to go with a discount broker who provides the 2-in-1 account and link to the bank account. If you don’t have a bank account, open a 3-in-1 account with nationalized banks and you will get Bank, Demat and Trading account. While opening the account provide all the updated documents and ID proofs.