The mechanism of trading in the securities market of India is an intricate process with several indispensable components. Whilst stock exchanges, registered stock brokers, depository participants, and investors serve as important pillars of the trading process, the importance of trading accounts and demat accounts can scarcely be overstated. Both types of accounts are pivotal to the process of securities trading in India, and can be opened online in a few simple steps. In this article, we shall discuss the meaning and workings of a trading account, and how you can open a trading account online.
What is a trading account
A trading account is an account that is used to trade in the securities market. Through a trading account, you can place buy and sell orders with a stock exchange. You can invest in a variety of securities with a trading account, ranging from shares to mutual funds, bonds to derivatives. In order to invest in securities, you must link your bank account to your trading account and add funds to the latter. There is the option to avail of margin trading facility.
There are several types of trading accounts based on the type of assets that can be purchased through them (Equity Trading Account, Commodity Trading Account, etc.) and the range of features available to the account holders (Discount Trading Account, Full Service Trading Account, etc.). Along with a trading account, you must also open a demat account, which can be an NSDL demat account or a CDSL demat account.
Eligibility criteria to open a trading account in India
You can open a trading account with any registered stock broker or financial institution offering such an account. Here are the prominent eligibility criteria to open a trading account in India.
- Age: 18 years and above (since minors cannot be parties to a contract, trading accounts cannot be opened in their name)
- Nationality: Both resident and Non-resident Indians can open a trading account.
Documents required to open a trading account online
In order to open a trading account in India, you must have the following documents ready:
- Proof of identity
- Permanent Account Number (PAN) card
- Proof of address
- Bank account details
- Recent passport size photographs
- Proof of income (for trading in certain segments)
Steps to open a trading account
You can open a trading account online by following a simple process, the steps to which are as follows:
- Ascertain your requirements from a trading account: Since different types of trading accounts offered by different stock brokers carry a varying range of features, it is important to have clarity on your requirements from a trading account. Once you have ascertained what type of trading account you are looking for, the selection process would become targeted and efficient.
- Compare the features and costs of various trading account offerings: As the next step to opening a trading account, you must peruse the features and charges of various trading account offerings. Then you must compare the aforementioned offerings and shortlist the ones most feasible to you.
- Select a brokerage firm to open a trading account with: It is important to open a trading account with a credible brokerage house that has a strong history of regulatory compliance and customer service. The ideal trading account for you should be from a reputed brokerage firm, have the features and functions you require, and fall within your budget for a trading account.
- Complete the account opening process online: After selecting a stock broker, you can complete the trading account opening process on their official website. It is advisable to keep the supporting documents ready to have a seamless account opening experience.
- Receive your trading account credentials: Once your trading account opening application has been processed, the selected broker shall open the account. You will, in turn, receive the account details, including the client ID and password.
- Add funds to your trading account and start investing: You can access your trading account on the trading account platform of the selected broker. After checking that there are no discrepancies in the account, you can start shortlisting securities to invest in. Then you must add the required funds to your trading account, and start investing.
The bottomline
Opening a trading account is a straightforward process, particularly when you are clear on what type of trading account you require and how much you are willing to pay as account charges. In order to actually hold securities, you would also be required to open a demat account. The process of opening an NSDL demat account is similar to that of a trading account.
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