What is a trading account?
When you invest in the equity markets, you buy shares in exchange for money. The shares bought by the investors are stored by certified depositories. These depositories provide unique demat accounts to investors that store their stock holdings securely. When an investor sells a share, it is removed from the demat account. The shares are stored in the demat account and the money comes from the bank account, then what role does the trading account play? The trading account is the common link between the demat account, bank account and the investor. The buying and selling of shares are facilitated by the trading account. If you want to trade in equity shares, you mandatorily have to create a trading account. If you subscribe to a public offering, you don’t need a trading account as the shares, if allotted, automatically goes to the demat account. But you will always need a trading account to sell those shares or buy other shares.
How to create a trading account?
To get a trading account, you will have to zero in on a broker. Brokers are of two types—discount and full-service. Basically. The categorization is of the type of accounts they provide. Discount brokers provide no-frills trading accounts that allow just buying and selling of shares without any value-added services. Full-service brokers provide research, recommendations, financial data and a host of other services with the trading account. Once you have decided the type of broker, consider its credibility in the market. Stock market frauds are not very common in India but are not unheard of either. Along with the credibility, take into account the proximity to the broker’s office and interface of the trading software. The software interface is an important factor as a clumsy interface can be an irritant while trading.
After finalising the broker, you can either visit their office and ask for a physical form or fill up an online form on their website. A representative from the brokerage firm will help you with the application process and inform you about the required documents. Most brokers offer a demat-cum-trading account. Without a demat account, you can trade only in options and futures, but if you want to trade in equities, you need to have a trading account.
Documents required
Like most other services, you need to submit a proof of address and a proof of identity to create a trading account. PAN card is compulsory for opening a trading account. For proof of identity, you can submit a passport, voting ID, driving license or Aadhar card. The address can be verified by submitting documents like telephone bill, electricity bill and water bill.
A photocopy of the PAN card, address proof and identity proof has to be submitted, with the original for the manual KYC process. Some brokers also carry out a telephonic or manual verification process. The trading account is activated by the broker 3-4 days after the application and documents are accepted. If you do not want to submit the physical copies of the documents, there is an alternative method.
E-KYC process
If you want to avoid the manual KYC, you can opt for the E-KYC method through the Aadhar card. For the E-KYC method, you will have to ensure that your Aadhar card id linked to the PAN card and your bank account. The mobile number linked to the Aadhar card should be the same as the mobile number submitted in the trading account application. The Aadhar verification is done online through a one-time password. You will also have to upload a copy of the PAN card and a cancelled cheque. After the submission of the documents, you will have to verify yourself either through video conferencing or visiting the nearest branch of the broker.
Benefits of a Trading account
Single Accessibility:
By opting for the best trading account in India, investors can procure accessibility to all the stock exchanges across the country through a single platform. Some of these exchanges include the Bombay Stock Exchange (BSE), the National Stock Exchange (NSE), Multi Commodity Exchange (MCX), and the National Commodity and Derivatives Exchange (NCDEX).
Flexibility:
Account holders can access their online trading accounts from anywhere, at any point in time. With browser and application-based trading platforms, trading accounts can be accessed through a computer, laptop, smartphones, tablets, and other smart devices.
Seamless Transactions:
The advanced technology ensures clients receive seamless transactional capabilities. The entire process of transfer of funds and equities is completed without any hiccups. This provides clients the ability to invest and save with convenience and ease, using a secure trading platform.
Access to Reliable Research:
To succeed in equity and other investing, having access to reliable research reports prepared by experienced and knowledgeable professionals is extremely helpful. Such reports are often supplied by the service providers, which makes it easier to make informed investment decisions. This can significantly increase the possibility of earning higher profits through investments.
Personalization and Alerts:
Customers can access personalized customer support from trained executives in case they are facing any technical issues with their trading accounts. Moreover, clients can set personal alerts through messaging or emails, which means they do not miss out on their buy and sell targets.
Multiple Media:
Placing orders through the online account is beneficial in streamlining the entire process. The different ways of accessing the account allow an investor to trade during market hours as well after-market hours, if the need so arises.
How to Place a Buy Order?
- Login to the trading account and place the order to buy the shares through one of the stock markets
- The transaction is processed by the selected exchange and is based on the price and other factors. The transaction is then completed
- At the time of settlement, shares are directly credited into the Demat account linked to the trading account
Selling Shares
- Select the shares and quantity to sell from the stock holdings
- Place the order on the selected stock exchange
- Transaction is processed by the equity exchange
- Shares are directly debited from the linked Demat account
Open a Trading account
- Select a firm or broker
- Make a comparison on the service offerings and brokerage charges
- Contact the selected service provider
- Submit application form and related documents (proof of address and identity)
- Undergo the verification procedure
- Avail the trading account details
- Start transacting
Online share trading makes investing in different financial products convenient and easy. It provides a single platform to meet all of the investors’ requirements.
NRI Trading Account
The guidelines of the Reserve Bank of India (RBI) mandate NRIs to open a trading account with a designated institution authorized by the RBI. They must avail either a Non-Resident Ordinary (NRO) or Non-Resident External (NRE) account to route the various investments.
Types of Accounts
- PINS Account:This account allows the buying and selling of equities through the Indian stock exchanges. This can be further classified as NRE and NRO PINS accounts. NRE PINS allows transactions where the funds can be repatriated to foreign countries. On the other hand, NRO PINS account does not allow fund repatriation for executed transactions.
- NON-PINS Account:This kind of account is used for investing in Initial Public Offerings (IPO) or investments made in mutual funds and as residents. This is, again, classified as NRE and NRO Non-PINS account. Transactions made through NRE can be repatriated, while NRO transactions cannot be repatriated. Moreover, the NRO Non-PINS accounts allow trading in futures and options.
A PINS account works similarly to an NRE account. Even when NRIs have an NRE account, a separate PINS account is mandatory for trading in equities. It is important for users to remember that an NRI can maintain only one PINS account at any point in time.
Bank Branch
PINS accounts can be opened only at the designated branches of dealers that are authorized by the RBI under the PINS. The addresses are available on the websites of the various authorized dealers.
Application Form
To avail the PINS account, users need to fill and submit an application form to the designated branch of an authorized dealer. Moreover, while submitting the application, clients must provide all details relating to any transactions done in the primary markets. A PINS Demat account form must also be submitted along with the application form.
Documents
While opening an online trading account, the NRI customers need to submit a copy of their passport, employment visa or work permit (as applicable), and their address proof. In addition, a PINS permission letter from the authorized dealer, PAN card, photographs, and proof of depository and bank accounts are required to be submitted along with the application form.
Making Payments for Purchases
With the knowledge on what is a trading account, NRIs must also understand how payments for their investment purchases must be made. Payments for investments made on a repatriation basis is completed through an inward remittance through regular bank channels or through funds maintained in the NRE account. If the purchases are on non-repatriation basis, the payment can be made through funds retained in the NRO account.
Remittance of Sales Proceeds
Shares sold under repatriation basis can be credited to the NRE or NRO accounts of the investors. On the other hand, funds received for the sale of securities on non-repatriation basis can be credited only to the NRO accounts of the investors.
Transfer of Shares
All shares purchased through NRI trading accounts can be sold only in Indian equity markets. Any arrangements under private sale or gift are not allowed by the RBI guidelines.
With RBI allowing equity investing for NRIs, institutions are offering different products to meet the increased demand. The flexibility offered by these various trading accounts ensures NRIs can find one that suits their requirements to invest in the Indian stock markets.
Equity trading account:
With an equity trading account, you can trade in stocks, futures and options. The equity trading account is not enough to take delivery of the stocks or to subscribe to an initial public offering. If you decide to take delivery of shares, you will need a demat account to store them. But if you trade only in futures and options, a trading account is sufficient as no delivery is involved in futures and options.
Commodity trading account:
The commodity trade is a big part of the overall market, but you will require a separate trading account for commodity trading. Even though commodity trading is as simple as trading in equities, separate trading accounts are a result of a different era. Earlier, the regulatory body for commodities and equities were different, but a few years ago the commodity trade was brought under the regulation of the SEBI. Even though the regulator is the same now, the practice of separate trading accounts is continuing.
Online and offline trading accounts:
Don’t get confused by the name, offline trading account doesn’t mean the physical presence of the trader at the exchange or the broker’s office. Offline trading accounts don’t provide the facility of online trading through a desktop or mobile application. One has to call a broker and place orders in the case of offline trading accounts. As the name suggests, online trading accounts provide the facility of trading through an application, which uses the internet to relay the information to the brokerage.
2-in-1 account and 3-in-1 account:
To trade in the stock markets, you require three types of accounts—trading account, bank account and a demat account. You will have to transfer money from your bank account into the trading account. Then you can use the money to buy shares through the trading account that will be held in the demat account. Some brokerages offer a 2-in-1 account that has an integrated trading and demat account and it makes the buying/selling and the transfer of shares to the demat account seamless. The 3-in-1 account goes a step further and offers an integrated demat, trading and bank account. A 3-in-1 account facilitates seamless transfer of money as well as shares. Generally, banks with brokerage operations offer 3-in-1 accounts.
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