What is a trading account
A trading account is transaction account provided by your broker or broking arm of your bank to transact in share market. You need a trading account to buy or sell shares in stock market.
The reason is that you can not directly access the stock market. You need to have broker’s license to operate in stock market. Now, for retail investors this is too big a hassle, so they open a trading account with any of the registered broker.
This trading account provide them access to share market through their brokers. Only thing that you hold in your trading account is either the margin money or your current positions. The shares you buy to invest are transferred to your demat account, which is a different purpose account.
Documents required for opening trading account
Similar to demat account, a trading account also require following documents:
- PAN Card
- Address Proof
- Bank Statement
- Passport size photograph
- Cancelled Cheque
Along with this, most of brokers ask for a cheque with some margin amount (rather then cancelled cheque) to open your account. This can range anywhere from Rs. 1,000/- to Rs. 10,000 /-. It is not a fixed and can be bargained with.
When ( & why) do you need a trading account?
You need a trading account to buy & sell shares in the secondary stock market. The secondary stock market is:
The secondary market is where investors buy and sell securities they already own. It is what most people typically think of as the “stock market,” though stocks are also sold on the primary market when they are first issued. ~Investopedia
So, if you planning to invest in stock market on your own. Long term or short term, that is when you need a trading account.
For buying Mutual Funds, IPOs etc. you don’t need a trading account.
Now coming to the why part:
As you know by now, a trading account gives you access to secondary market. Which means, the IPO stocks which you invested in, when they need to be sold, you need access to the secondary market. This is not the main benefit though, this is just an example.
The main benefit is the seamless access that you get to your own demat account as well as the share market on one terminal. With a trading account, you can access both electronically. Thus automating a lot of your investment and earning money from stock market via trading needs.
The other benefit is access to broker provided research reports, real-time stock quotes and trending stocks. This knowledge is very useful in building your financial future.
So in summation
Benefits of opening a trading account
- Access to demat held shares & stock market from single platform.
- You can check your portfolio on a computer as well as on your mobile through broker’s app.
- Access to research reports, financial data provided by your broker
- Charting facilities provided by nearly all the brokers these days. With technical analysis, you can see the trend and enter the market when prices are dirt cheap.
If you are yet to open a trading account, I suggest you do that soon. It is a good tool to help you in reaching your financial goals and build wealth.
With more than 10 years of experience in the market, I have tested many brokers. You can find mine, as well as my fellow trader’s reviews about brokers in the review section.