A trading account is one of the most important prerequisites that you need to satisfy to be able to trade in the stock market. However, if you’re new to financial markets, you may not know what a trading account is. In this article, we’re going to take a look at this unique account and try to understand the role it plays when it comes to stock trading. So, let’s begin by trying to understand the meaning of a trading account.
What is a Trading Account?
A trading account is an electronic account that allows you to buy and sell a wide range of securities, such as stocks, bonds, and other financial instruments, online on a stock exchange. In addition to using the account to place orders for buying and selling securities, you can also view your transaction history and access research and other tools offered by your stock broker to help make better investment decisions.
That’s not all. Your trading account also gives you detailed information on your account balance, which includes the funds that you hold in the account as well as the details of shares or securities that you hold, such as the quantity, the type of security, and the current market value of the assets.
Trading accounts are offered by stockbroking entities like Motilal Oswal and are often linked to a Demat account. So, when you purchase shares or other securities through your trading account, the same are delivered to the Demat account linked to it. Similarly, when you sell shares or other securities through your trading account, they’re automatically debited from the Demat account linked to it.
Can You Buy and Sell Shares and Other Securities Without a Trading Account?
Now that you’ve seen what a trading account is, let’s take a look at whether you can make do without one.
The short answer to this question is - yes, you can. Now, a trading account is only mandatory to buy and sell shares and securities from the stock exchange. In cases where you purchase or sell shares and securities outside of the stock exchange, you don’t require a trading account; having just an active Demat account would do.
For instance, if you wish to apply for the upcoming IPO of a company, you don’t require a trading account. Instead, you can use the Application Supported by Blocked Amount (ASBA) method to apply for the shares, which only requires you to have a bank account and a Demat account. The same is the case with mutual funds.
That said, although you can buy and sell shares and securities outside of a stock exchange, it is advisable to try and route your transactions through one. And for that, you would need to open a trading account.
How Do You Select the Right Trading Account?
Before you go ahead and open a trading account with a stockbroker, there are a few things that you would need to consider. Here’s a brief overview of the factors that you should take into account when evaluating a trading account.
1. Your experience level
It is very important to consider your experience and comfort level. For example, if you are new to trading, try to look for an account that is easy to use and with educational resources, such as webinars and tutorials designed to help you make informed trades. On the other hand, if you’re an expert trader, look for a trading account that offers high-level features that cater to your experience level.
2. Features
When looking for the right trading account, always make sure to opt for one that offers the features that you’re looking for. For instance, if you need a particular feature, such as the ability to place a ‘Good Till Triggered (GTT)’ order, make sure that the trading account that you’re planning to open supports such functions.
3. The reputation of the stockbroker
Of late, there have been many unsavory incidents involving stockbroking entities in India. So, to ensure that you’re protected from such happenings, always remember to opt for a stock broker that’s experienced and reputed, like Motilal Oswal. So, make sure that the account that you opt for allows you to trade the securities you're interested in.
4. Type of securities that can be traded
Not all trading accounts allow you to trade in all kinds of securities. For example, some might only allow you to trade in shares, while others may allow you to trade in other securities like bonds, debentures, and even derivatives.
5. Fees
It is important to also account for the fees charged by the stockbroker on your trades. The lower they are, the better. So, compare the fees for different accounts, including trading commissions, account maintenance fees, and withdrawal fees.
Conclusion
With this, you must now be aware of the meaning of a trading account, its importance, and how to pick the right account for yourself. Now, if you don’t have one already, simply head to