Before the introduction of trading accounts in india, investors had to depend on stockbrokers to buy and sell stocks. To invest in the stock market, it is essential to open a demat account and trading account.
According to the trading account definition, it is the place where actual buy and sell transactions are executed. When you buy a security, it is held in your demat account in digital form. The trading account is also connected to a bank account from which you transfer funds to buy securities. The system of demat accounts, trading accounts, and bank accounts facilitates a seamless environment for online trading.
The procedure of demat account and trading account opening is quite simple as the entire process can be done online these days. You can open a separate trading account for each asset class to maintain clarity in your investments. Some investors also open multiple trading accounts as per their trading strategies. It is essential to understand the different types of trading accounts before understanding their characteristics.
What are the types of trading accounts?
Based on the trading type, the trading accounts can be categorized into these types:
Equity and Derivative Trading: An equity and derivative trading account in India are required for buying and selling stocks and derivatives. You don’t need a demat account to trade only in derivatives. However, if you are also interested in stocks, a demat account is required to hold them.
Commodity Trading Account: It is a type of trading account that allows you to trade in commodities like gold, oil, agricultural products, etc.
Trading account with MTF: A trading account with MTF (Margin Trade Financing) facility allows you to borrow money to invest in securities. The broker will fund a part of the transaction and the remaining amount needs to be managed by yourself. A higher percentage indicates a higher borrowing facility. Also, interest will be charged on the borrowed funds.
On the basis of trading services, trading accounts can be classified into these types:
Discount Trading Account: A discount broker offers a trading account that includes basic trading services with an online trading platform. If you own a discount trading account, a flat brokerage charge will be applicable on the trades irrespective of the trading volume. Due to the low cost associated with these trading accounts, they are also known as low-cost trading accounts.
Full-service Brokerage Trading Account: A full-service trading account offers research tools, advisory services, research reports, and an intuitive trading platform. However, a percentage of the trade volume will be charged as a brokerage. Therefore, the brokerage costs associated with this type of demat account are normally higher.
Characteristics and benefits of a trading account
Market updates and notification alerts:
A reputed broker will provide you with regular updates on market news and events. You also get notification alerts that include insights on current market trends and stock recommendations.
Advanced trading platform:
An advanced trading platform provides access to data analytics through graphs or charts. Through analytical charts, you can analyze how your investments are diversified across different industries and markets. Access to data and research analytics assist you in making smart investment decisions.
Access to different markets:
If you have access to multiple asset classes like equities, bonds, government securities, mutual funds, etc. you can diversify your portfolio easily. It minimizes the risks of your portfolio and enables you to utilize the earning opportunities available in the market.
New-age trading platforms are accompanied by a dedicated mobile application. This application allows you to track your investments from any corner of the world. You can also place buy and sell orders through these apps conveniently.
An online trading account facilitates quick and seamless stock market transactions. Adding funds and placing buy and sell orders become easy through a trading account.