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What You Should Know About Trading Accounts

by Team Techvilly
What You Should Know About Trading Accounts

With dematerialization and electronic screen-based trading, a majority of trades happening today are completely online. To fulfill these trades, you need a Demat account and a trading account. A Demat account is like an electronic bank account. An electronic version of your investments is kept in the Demat account like shares, mutual fund units, non-convertible debentures, bonds, etc. You can check the balance of your Demat account at any time. Your Demat account can have no balance or no investments credited and still be operational.

Even though a Demat account is an electronic repository of your investments, a trading account is required if you want to purchase additional investments or sell any investment at any time. A trading account acts as a link between the Demat account and the exchange’s order matching mechanism. Even for intraday trades, having a trading account is essential. Placing orders is not possible through a Demat account.

You must open a day trading account with a broker registered with the Securities and Exchange Board of India (SEBI). However, a lot of brokers offer demat cum trading accounts where both accounts can be opened with the broker. This helps facilitate easy share transfers between the Demat account and the trading account to make trades.

You can open a trading account online and offline.

Steps to open a trading account online:

  1. The first step to opening a trading account online is to fill up the account opening form. The account opening form typically requires the following information:
    a. Personal information
    b. Contact information
  2. Once you fill up the account opening form, you also need to submit your KYC documents to confirm your identity to the stockbroker. The standard KYC documents required are:
    a. Proof of identity (PAN card, Passport, Driving License, Voter ID, Aadhar card, any other Government issued ID card)
    b. Proof of address ( Passport, Aadhar card, Voter ID, Driving License, Electricity bill, Telephone bill, Gas bill, Home loan papers, Lease rental agreement, Home ownership papers, Ration card)
    c. In the case of companies or partnership firms, you will need to submit relevant documents like a Certificate of Incorporation or Partnership Agreement
  3. The stock broker may verify identity physically while collecting KYC documents. Some account opening forms also need witness signatures. A lot of brokers personally come to the applicant’s residence to collect signatures for the account opening form.
  4. Once the account opening application is processed, your trading account will be opened.
  5. You will need to link your Demat account to the trading so that shares can be transferred from your Demat account to the trader’s account. In case you have opened your Demat account and trading account with the same broker, then there are no issues. All you need to do is issue a Power of Attorney (POA) to the broker to transfer shares. In case you have opened a Demat account elsewhere, you will need to fill up a Delivery Instruction Slip whenever you have made trades so that shares are transferred from your Demat account to the stockbroker for trade settlement. However, it is better to issue a limited POA to the stockbroker so that there is no misuse of the shares while using the trading account.

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