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If you are just starting out, think of a trading account as the control hub for your journey in the financial markets. Want to buy stocks? Or commodities? A trading account is your launch pad.
But between equity, commodities, online, offline, and more – how do you pick the right one? Let’s explore the various trading accounts that set your money into motion with different trading strategies.
What is a trading account?
A trading account allows you to buy or sell commodities, equities, bonds, derivatives, or any other financial asset. A trading account serves as a centralised trading and management platform.
A trading account connects your demat and bank accounts. When a shareholder wants to buy shares, the order is placed through this account, which is then forwarded to the relevant stock exchange. Once it’s done, the shareholder’s bank account will be debited with an equal amount of money, and their demat account will receive the shares they bought.
Similarly, the required shares are taken from the demat account, and the trader’s bank account is credited with the selling money upon placing a sale order.
Trading account types
With dematerialised shares arriving, all you need to do today is make an order using a trading account to execute orders. India offers a wide variety of trading accounts.
- Equity trading account
It is possible to invest in equities, futures, and options using an equity trading account. But this account does not allow trading in commodities. With only an equity trading account, you may not take delivery of shares or subscribe to an IPO. A demat account is needed to take delivery of shares or to subscribe to an IPO.
- Commodity trading account
Buying and selling metals, crude oil, and other commodities will need a separate trading account. Trading commodities is like buying stocks, but you must open an account with a registered commodity brokerage and a recognised commodity exchange in India to trade commodities.
- 2-in-1 account and 3-in-1 account
Traders in the stock market need a trading account, a bank account, and a demat account to engage in trading. Trading or purchasing shares and moving them to a demat account are made easy with certain brokerages’ 2-in-1 accounts, which include trading and demat functions.
For even more convenience, the 3-in-1 account combines your demat, trade, and bank accounts into one. You can quickly transfer money and shares with a 3-in-1 account.
- Online and offline trading accounts
A trader who prefers to do business in the old-fashioned way may place orders with authorised stockbrokers over the phone or might personally go to the broker’s office and submit the order there.
In contrast, when trading online, a reputable stockbroking firm’s trading software or a trading app will execute all of the trades that the trader wants to make.
- Discount trading accounts
Discount trading accounts do not provide any value-added services; they only offer basic trading. Brokerage fees for this account type are lower than those for other trading accounts since operational expenses are lower.
- Full-service trading accounts
A full-service trading account provides more options for trade execution than a low-cost trading account.
Types of trading in the stock market
Now that we have a clear understanding of the different types of trading accounts in India, let’s have a quick look at the many ways you can trade in the stock market.
Day trading: Intraday or day trading is where traders trade securities within a single day.
Positional trading: Positional trading is a long-term strategy where traders hold a position for an extended period of time, like weeks, months, or years, to take advantage of a trend.
Swing trading: Swing trading involves holding a position for a short period of time to make a profit from the price swings.
Long-term trading: A long-term trader determines the stock’s prospects by considering many factors, and the holding position could be years or even decades.
Scalping: Scalping falls under the umbrella of intraday trading. Scalpers make many short-term trades to make money from the movements.
Momentum trading: The goal of momentum trading is to plan your entry and exit from a stock correctly by estimating its momentum.
A trading account opens the door for you to enter the stock market and make profits. It is thus essential to know the differences between the various types of trading accounts in India before choosing the one that fits your needs and interests the best.
However, when choosing the right account for you, make sure to consider the investment options, interface navigation, customer support, and stability of the platform.
Yes, you can have multiple trading accounts. The one and only rule is that you cannot open more than one demat and trading account with the same brokerage or depository participant. You are limited to having one demat and trading account with one stockbroker.
A demat account is used to hold your securities in electronic form, whereas a trading account is used to buy and sell securities in the stock market. A demat account acts as a bank account for your securities, while a trading account acts as a platform for your transactions.
The three accounts for trading are a demat account, a trading account, and a bank account. A demat account holds your securities, a trading account executes your orders, and a bank account transfers funds to and from your trading account.
Yes, you may open a demat account through DPs without a broker. But if you want to buy or sell shares, you will need to work with a broker or sub-broker registered with SEBI.
If you can relate to any of the following points, you cannot open a demat account in India.
You are a foreign national holding a foreign passport
You are an Indian adult citizen without a valid PAN card
You do not have a working bank account.