Trading Account : Meaning, How does it work, Advantages and More

Trading Account has become the essential tool to invest in stock markets seamlessly. It makes the entire process of share trading secure and speedy. This article covers the following:

What is a Trading Account?

A trading account is used to buy or sell equity shares in a stock market. Previously, the stock exchange functioned on the open outcry system. In this, the traders used hand signals and verbal communication to convey their buying/selling decisions. Soon after the stock markets adopted the electronic system, trading accounts replaced the open outcry system. In the online method, the buyers and sellers don’t have to be physically present at the stock exchange to place orders. Instead they open a trading account with a registered stock market broker; who conducts trading on their behalf. Each trading account has a unique trading ID which is utilised to perform online transactions.

How does a Trading Account work?

A trading account acts like a link between demat account and bank account of an investor. When an investor wants to buy shares, he places an order through his trading account. The said transaction goes for processing in the stock exchange. Upon execution, the required number of shares get credited into his demat account and a proportionate sum gets deducted from his the bank account.

A similar kind of process is followed in order to sell equity shares. The investor places a sale order for say 100 shares with the help of  his trading account. It goes for processing in the relevant stock exchange. When the order is executed, the required number of shares are debited from his demat account and a proportionate sum gets credited to his bank account.

What are the advantages of a Trading Account?

One-point Access

You may find multiple exchanges in India which trade in different securities and commodities. Some of the leading exchanges are National Stock Exchange (NSE), Bombay Stock Exchange (BSE), National Commodity and Derivatives Exchange (NCDEX), and Multi Commodity Exchange (MCX). Having an online trading account enables access to all these exchanges via common platform. Wealth creation becomes one-click away.

Reliable information

Equity investing is all about taking the right decision at the right time. Online trading platforms extend valuable services like research reports prepared by experienced and knowledgeable professionals. The reports enable investors to make informed investment decisions. Ultimately, there is a higher probability of earning higher returns.

Notifications and customisation

Trained executives hired by online trading platforms provide customised support to the clients round-the-clock. It can be a technical issue or some other difficulty to handle the trading platform. Additionally, alerts can be set through SMS or emails in order to get notification about the buy and sell targets.

Flexibility

After trading platforms have become app-based, it has become easy to access them with the help of laptop, smartphone and other hand-held devices. Online trading has introduced the flexibility  to keep a track of investments from anywhere and at any point in time.

Seamless Transactions

Online trading has made the procedure of fund transfer and conducting equity trading very seamless. With the help of advanced technology, clients are in a favourable position to save and invest conveniently and easily.

What are the documents required for a Trading Account?

Trading Account acts as an interface between investor’s Demat Account and savings bank account. The trading account opening procedure and the mandatory documents required are similar across organisations. Before submitting any document having an expiry date, ensure that it is valid on the submission date. Here is the detailed list of documents that you need for opening a trading account.

Proof of Income

You may submit any one of these as a proof of income:

• A photocopy of the Income Tax Return (ITR) Acknowledgement slip submitted to the Income Tax Department during tax filing.
• Certificate of Net Worth or photocopy of the annual statement of accounts authenticated by a Chartered Accountant.
• Salary Slip of the current month or Form 16.
• Latest statement of bank account containing the income history of last 6 months.
• Any documents that prove ownership of assets through self-declaration.

Proof of Identity

You may submit any one of these as a proof of identity:

• PAN card having a valid photograph.
• Aadhaar card / Voter ID card / driving license/ Passport.
• Identity card having applicant’s photo which is issued by Central/State Government and its Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions, University affiliated Colleges, Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council, and Credit/Debit cards issued by Banks.

Proof of Address

You may submit any one of these as a proof of address:

• Passport/Voters Identity Card/Ration Card/Registered Lease or Sale Agreement of Residence/Driving License/Flat Maintenance bill/Insurance Copy.
• Utility bills like landline telephone bill, electricity/gas bill which is not more than 3 months old.
• Bank Passbook which is not more than 3 months old.
• Self-declaration of new address given by judges of High Court and Supreme Court.
• Address proof which is issued by bank managers of Scheduled Commercial Banks/Scheduled Co-Operative Bank/Multinational Foreign Banks, Gazetted Officer / Notary public, Member of Legislative Assembly, Member of Parliament.
• Identity card containing address which is issued by Central/State Government and its Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions, University affiliated Colleges, Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council.
• Address proof given in the name of the spouse

How to open a Trading Account?

In order to conduct equity trading online, you need to open an online trading account with a stock broker. Amongst thousands of clients, the broker may find it difficult to give your personal attention. Trading account makes the whole investing job a lot easier. You can open a trading account by following these steps:

• Select a broker who has a good reputation of executing orders in a timely fashion. This is necessary to tap the opportunity at the right time.
• Every broker levies a certain fee to process your orders. So, it is better to draw a comparison of brokerage rates across the region. Also enquire about the discounts available to enjoy better services at reasonable rates.
• Find a brokerage firm and enquire regarding the procedure to open a trading account.
• A representative of the firm will visit your house with an account opening form and the Know Your Client (KYC) form. You need to fill these two forms and attach the relevant documents with it.
• After the submission, the firm will verify your personal details either through an in-person check or over the phone.
• Once your application is processed, you will be provided with details of the trading account.