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Trading Account

OVERVIEW OF THE TRADING ACCOUNT

Trading Account

Trading account is your gateway to the world of investing in equities. This includes trading in shares, futures and options. The trading account is where you execute all the transactions pertaining to the buying and selling of shares and other investment instruments. To transact in equities, futures or options, a trading account is a basic necessity. You can open a trading account with a broker.

WHY YOU NEED A TRADING ACCOUNT?

There are 4 principal reasons why you need to open a trading account. It is considered to be your gateway to your journey into stock markets…

Trading Account
  • Trading account is your flow book. Capital market transactions like buying and selling of shares are only handled through your trading account. Your demat account can only hold your shares in custody and any debit or credit to demat account via market transactions require a trading account.
  • Trading account is essential for putting trades in futures and options. Both futures and options are contracts and do not result in delivery. Hence they do not impact the demat account in any way. However, they have to be executed in your trading account only.
  • Trading account is also essential or selling your IPO shares. For example, you can buy IPOs and get the credit directly into your demat account. But what if you need to sell these IPO shares post listing. In that case, you will definitely require a trading account.
  • Last but not the least, the trading account is your veritable link between your demat account and bank account. Hence, your trading account becomes critical for clearing and settling trades. You’re clearing pay-in or pay-out on a net basis is determined based on the trading account and even for the settlements, the instructions are actually routed through the trading account.
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BENEFITS OF HAVING A TRADING ACCOUNT

Trading account is your flow book. It enables you to record buy and sell transactions in the flow book and then these transactions are either squared off or they are taken to delivery. Here are 5 benefits of having a trading account.

  • Under the extant SEBI regulations, you cannot execute transactions in equity, futures or options without a trading account. This is also true of transactions in currency derivatives. All transactions have to be necessarily routed through the trading account only.
  • Trading account enables you to sell your IPO allotment shares. If you do not have a trading account then you will have to continue to hold on to the shares and cannot sell the shares. In the process you may lose out on good profit booking opportunities.
  • Trading account is also essential to differentiate your delivery and non-delivery trades which are done on a net basis. This enables you to easily distinguish which helps in quite clearing and settlement of trades during the day.
  • Since futures and options positions cannot be held in demat custody due to the absence of ownership title, these contracts are actually held in the trading account only. This facilitates the buying and selling of these F&O contracts in the trading account.
  • Above all, the trading account acts as the gateway to your long term investments in equity. It is only equities that can generate wealth in the long term and for that the trading account is the gateway to your future.

How to Trade Online using Trading Account

To trade online you need to activate your trading account with the broker and then also apply for online trading on the internet. There are additional agreements to be signed for this. Your process to trade online will be as under:

STEP 1

The first step in online trading is to set your password. The broker will allot you a user name and a password. You can use the password to log into your broking account but once logged in you will be prompted to change your password.

STEP 2

Once your password is changed, you must ensure that you remember the password for future access. Don’t ever write down your password to the trading account at any place. Also don’t make the passwords too obvious because then any smart hacker will be able to find out your password by some basic iterations.

STEP 3

Once you log the next step is to go through the complete online trading documentation and if available the online demo for trading. The demo will adequately explain the nuances of online trading to you, which you must use to the fullest extent.

STEP 4

Once you are familiar with the finer points of online trading, the next step will be to allocate money. This essential for you to trade online because whether it is delivery or trading, you need to allocate some money first before you will be allowed to put in orders.

STEP 5

Once you have allocated money into your trading account, you are set to place orders once your margin account shows as credited. You can then place orders and check it in the order book and the status of execution in the trade book within your online trading account.

Difference Between Trading Account and Demat Account?

Trading account is the platform for executing buy and sells transactions in equities and in futures and options. Demat account is the custody account and holds shares in custody just like the bank holds cash in custody. Let us look at some key differences.

TRADING
ACCOUNT
Trading account is the transaction account where buy and sell transactions are executed in the stock markets.
DEMAT
ACCOUNT
Demat account is the account that holds shares in custody and it is a statement of ownership.
Trading account is a flow statement and therefore the trading account transactions are always expressed over a period of time which could be a month, quarter or year.
Demat account being a stock statement is always viewed at a particular point of time like quarter end or year end.
Trading account can execute transactions in equities, stock futures, stock options, index futures, and index options and also in currency derivatives.
Demat account can only hold in custody where ownership is possible like in the case of equities, mutual funds, bonds, ETFs etc.
Trading accounts can accept margins from the bank account and send shares to the demat account for credit via clearing and settlement.
The demat account can debt and send shares and also receive shares based on the net balance in the trading account.
Can a person only have a trading account? Yes if he only intends to trade in futures, options or currency derivatives then demat account is not required.
But for trading in equities, even if be intraday, you will require a demat account and that is a SEBI stipulation.
you will need a trading account to sell these shares received.
person have a demat account without having a trading account. That is possible in case you are getting direct of IPO shares or when you are getting shares as gift by offline transfer.

How Does Trading Account Work?

The trading account entails the following steps to make it function smoothly and meaningfully for the customer.

  • Firstly, the trading account has to be activated by going into the trading account and changing your password. There is a second level of authentication that trading accounts will insist on.
  • Once the trading account is activated, the next step is to place the order. You can place a market order or a limit order. Once the order is placed it will show up in the order book. You can modify or cancel the order as long as it is still in the order book.
  • When the order is executed, it goes into the trade book. One the order is executed it can be neither cancelled nor modified. You can only close out the order. The order book will show the price, time and quantity of each unit of the order.
  • At the end of the day, your net positions are calculated and the pay in and payout is determined. Based on your net positions you get cash debits and demat credits or you get demat debits and cash credits. In case of futures, options and intraday transactions, there are only cash credits or cash debits.
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"Prevent Unauthorized transactions in your Trading/Demat Account --> Update your mobile numbers/email IDs with your stock brokers/Depository Participant. Receive alerts/information of your transaction/all debit and other important transactions in your Trading/ Demat Account directly from Exchange/CDSL at the end of the day .......... Issued in the interest of investors." | "KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary." | "No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorize your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account." |"Investment in Securities Market/Commodity Market is subject to Market Risk. | RGESS investors kindly download New Retail Investor Certificate from link - https://www.cdslindia.com/investors/rgessverification.aspx | Dear Investor kindly update Aadhar Number with your demat account, contact your nearest branch."
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