Trading account is a commonly used term when talking about the stock market. It is one of the key components of trading, along with the Demat account and the broker. All these components together make it easier for investors to follow their pursuit of a fortune. Let us look at what it means, how it works, and the advantages of having an online trading account.
The trading account is essentially the link between you and your broker. Earlier, when the stock market had not digitized, this job was performed by the “jobbers,” taking orders from the clients and forwarding them to the brokers. Since the stock market has digitized, investors do not have to be present in person with the broker or at the stock exchange to place an order to buy/sell a stock.
The question of how to open a trading account is quite simple to answer. Compare demat services of the brokers and select the broker with whom you are comfortable and who suit your financial and investment needs. After choosing the one for you, visit their website/mobile application to access the online application form.
How does it work
If you look closely, the trading account is the link between your registered bank savings/current account and your demat account. Hence, it is essential for you to open a demat account for online trading. Further, every trading account has a unique ID (which you may ask your broker to provide if you want to). This ID is used whenever you make a trade in the market. Let us elaborate on how it works.
When you place a buy order, the money is deducted from your bank account via the trading account, using your trading ID. Later, when the shares are settled, those shares will be deposited in your demat account.
Similarly, when you place a sell order, shares are debited from your demat account using the trading ID and then your bank account will be credited with the amount for which you sold the shares.
Advantages of Trading Account
As unnoticed as it may be, a Trading Account proves to be very useful and is a crucial part of trading. Here are some of the main advantages of a trading account:
Multiple channels, one solution
There are a lot of choices to make while trading, from selecting the exchange to the type of trade you want to make or even selecting the type of price you want to buy it at. All this is facilitated quite elegantly by the trading account, which brings to you the opportunity to make a fortune in just a few clicks.
Even after so many choices available for trading, the actual process is quite simple, thanks to trading accounts that integrate different types of trading steps, all in a simple process.
When you open a trading account with a broker, they not only provide you with trading services, but also offer you additional services. Brokers have now shifted to online (websites and mobile applications) platforms, which provide you loads of information about everything you may need to know. This may be a company’s financial performance in the past decade or graphs relating to technical analysis, graphs and information related to fundamental analysis, a particular company’s management-related information, financial ratios, and the list goes on.
As it is separate from your demat and bank accounts, a trading account is the one place from where you can keep a track of all the transactions in different types of trade that you make. It can be very useful if any conflict arises with someone or at a time when you want to track all your investments from the beginning.