What Is Trading Account?

With the digital revolution, share market trading in current times is completely different to what it was even 30 years ago. Earlier, trades in India were completely offline. In fact, brokers used to sell shares using a method called the public outcry system. In this system, if you had to sell your shares, you would approach your broker and decide a good price for the shares. The broker would enter the trading floor and call out the price for shares. If there was another broker interested in purchasing the shares, the two brokers would conclude their transaction and the transfer of shares.

Nowadays, the public outcry system has been replaced by online share trading. You don’t need to call out prices anymore since the price is easily available on your screen. You can trade all of these through your trading account:

• Equity shares
• Mutual funds
• Commodities
• Currencies
• Derivatives (futures, options, swaps)
• Debt instruments such as bonds and securities

The online trading account links your demat account to the exchange’s order placing mechanism. The exchange’s order matching mechanism compares your order with other orders and executes them. For example, if you want to sell 500 shares of company A, the order matching mechanism will find orders that match in terms of price. If it finds 3 orders of 100 shares each and one order for 250 shares, it will execute the 3 orders of 100 shares and the fourth order will be executed for 200 shares. The exchange does this order matching automatically without any human intervention.

Once the orders are matched, the shares get debited from your account and funds credited to your bank account. In case you execute a purchase transaction, the process is reversed. Orders are matched and once they are matched, shares will get credited to your demat account and funds will be debited from your bank account.

It is necessary to have both a demat and trading account to execute purchase and sale transactions. Online trading in India enables you to execute different investment strategies, i.e., both intraday and delivery trading.

How to open a trading account?

Here are the steps you need to follow to open a trading account:

1. The first step is to select the right broker to open your trading account. You need a broker whose systems can help you with your share trading. The broker’s trading systems need to be able to execute your orders without delay. The broker needs to provide you with adequate back end support when required. One such highly reputed stock broker is IndiaNivesh Ltd.
2. One important point to consider is the brokerage on transactions. If you’re primarily looking at intraday trading, brokerage on individual transactions can add up to a lot. Getting this research done can help you choose the broker who provides excellent services with least brokerage.
3. Once you decide where to open your trading account, you need to fill out the account opening form and provide documents required.

Documents required to open a trading account:

• Proof of identity (PAN card, Passport, Aadhar card, Driving license, Bank passbook)
• Proof of address (Electric bill, Telephone bill, Gas bill, Passport, Driving License, Aadhar card, ration card, Lease rental documents, Home loan agreements)

It is best to open a trading account with a reputed stock broker like IndiaNivesh who can provide the required technical backend support for your transactions.

Nirav Singhaniya is a Financial Advisor and Share Marketer with 10 years of experience. In his free time, he likes to research on stock trading and share market trends.