An Introduction to Trading Account:
A trading account is your gateway to executing stock transactions in the share market. You can either have an offline trading account or an online demat account. In offline trading account you execute trades over phone or through the branch trading terminal. In an online demat account, you can execute the trades on the internet from your PC or laptop. Online share trading has been growing quite rapidly in the last few years, especially since the rise of zero brokerage accounts in India. Let us understand what a trading account is and what the key features of a trading account are.
Key features of a share trading account:
- You can buy or sell shares and other securities on a trading account. Apart from shares, you can also buy and sell index ETFs, gold ETFs and even mutual funds using your online trading account or your offline trading account. Before you trade, you need to fund your trading account and when the buy trade is executed the shares are credited to the demat account. When you sell shares in the trading account, the shares are debited to the demat account .
- You can trade in your trading account for intraday or for delivery. If you buy shares in the morning and cover the shares before end of trade, it is called an intraday trade. You can also sell shares and buy them back. An intraday trade is a square up transaction and hence does not result in delivery..
- You can also use your trading account for buying or selling futures and options. While futures prices are linked to the spot price of the stock, the options are rights and it is these rights that trade in the form of options premiums in the market.
- When you execute trades in your trading account, your broker will charge you a brokerage fee for the execution, details of which will be available in the contract note that your broker will email to you. Additionally, you will also be charged statutory charges like GST, STT and stamp duty which the broker collects from you on behalf of the government.
- There is one more interesting feature about trading accounts. If you intend to just trade only in futures and options then you only require a trading account and not a demat account. However, if you trade in cash then you have to open a demat account also. When you apply for an IPO, you only require a demat account. But you will require a trading account to sell these shares at a later date.
3 ways to use your trading account effectively and efficiently
Your trading or demat account allows you to execute transactions in the market both on the buy side and the sell side. Here are 3 things you must take care of in your trading account:
- Always make it a point to track your profits and losses as you trade. That is because you normally trade in your trading account with finite capital. If you keep a tab on the profits and losses on your trading activity, you will get an idea of whether you are adding to your capital or depleting your capital.
- Reconcile all your contract notes with your daily trade list and ensure that all execution has been in tune with the orders that you have placed. Also check on T+2 day after the trade if the effect of the transaction shows in your demat account and on your bank account.
- If you are using the online trading facility then make it a point to ensure that your trading security is properly taken care of at your end in terms of system security, trading passwords, secure internet connectivity etc. Also, make it a point to immediately contact your broker in case you find any discrepancies in your trading account.