Types of Trading Account in India

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  • 01 Sep 2023

A trading account resembles a conventional bank account, with the vital distinction being its function as a repository for financial assets such as bonds and shares. Unlike a regular bank account, this account enables you to engage in securities transactions actively. Its main objective is to facilitate the execution of buy and sell orders within the stock market.

Investors collaborate with their brokers to establish trading accounts, which serve as a platform for conducting trades. There are different types of trading accounts in India, each serving its purpose. What are they? Let’s find out.

Equity Trading Account

An equity trading account empowers traders to trade stock, futures and options actively. Traders also have the chance to participate in currency derivatives trading using their established trading accounts. However, it's important to note that an equity trading account doesn't cover all aspects. It's inadequate for subscribing to an Initial Public Offering (IPO), trading commodities, or securing stock deliveries.

For those interested in subscribing to an IPO or receiving stock deliveries, a Demat account becomes essential for secure storage. Conversely, an existing or new trading account proves sufficient if an investor aims to delve into futures trading or engage in options trading. The reason is that options and futures trading does not involve asset physical delivery.

Commodity Trading Account

The commodity market relies significantly on a commodity trading account. If an individual intends to engage in commodity trading, they must initiate the process by establishing such an account.

While the mechanisms of trading in commodities bear resemblance to equity trading, this specific account is established through a recognized commodity broker and a reputable commodity exchange in India.

India hosts two prominent and pivotal commodity exchanges, namely:

  1. The Multi Commodity Exchange (MCX)
  2. The National Commodity and Derivatives Exchange (NCDEX)

In the past, different regulatory bodies oversaw commodities and equities. However, a few years ago, the regulation of commodities trading was consolidated under the authority of the SEBI.

Offline and Online Trading Accounts

If a trader prefers offline trading, they can execute transactions by directly contacting a dependable stockbroker and issuing an order. An alternative approach to trading involves visiting the broker's office in person to place the order. However, the offline method tends to be more demanding and time-intensive.

In contrast, online trading streamlines the process. Traders simply need to place a call, and the trading software developed by a trustworthy stockbroking company or a mobile trading app will ensure the successful completion of desired transactions. Physical presence at the broker's office is not necessary, as this can be accomplished conveniently and effortlessly. The primary advantage of online trading lies in the ability to conduct transactions from the comfort of one's home.

2-in-1 and 3-in-1 Trading Accounts

To engage in trading on the Indian stock market, a trader must set up three distinct account types:

  1. Bank account
  2. Demat account
  3. Trading account

The trader needs to initiate a money transfer from their bank accounts to the trading account. Subsequently, this transferred capital can be utilized for purchasing or selling shares via the trading account.

However, the purchased shares find their secure repository within a Demat account. A few brokerages present a combined 2-in-1 trading account exclusively linking the Demat and trading accounts.

The central purpose behind creating a 2-in-1 trading account is to enable a swift and smooth transfer of shares from the trading account to the Demat account at the point of share acquisition.

Taking a step beyond the 2-in-1 setup, the 3-in-1 trading account offers an even broader range of features by seamlessly integrating banking services with both the trading and Demat accounts. Numerous brokerage services provide the 3-in-1 account arrangement to guarantee secure transactions and seamless fund transfers between these accounts.

Moreover, several broking platforms offer the added convenience of effortless fund transfers from the investor's bank account directly to their trading account. However, this advantage might be of a small magnitude.

Discount Trading Account

An ordinary trading account, known as a discount trading account, comes without any extra services. Brokers who specialize in discount trading accounts provide a call-and-trade feature but do not support offline trading.

Despite their affordability, these traders can be costly for investors because they can handle large volumes of trades at minimal expenses. Investors can perform trading transactions with the privilege of holding a discount trading account.

This account type boasts economical brokerage fees, as operational expenses remain lower than other trading account variants. However, it does not provide additional benefits such as financial guidance or research assistance to its clients.

Full-service Trading Account

A full-service trading account outshines a discount trading account with its array of services. Investors gain the advantage of accessing advisory services and seeking financial counsel whenever they find themselves in a bind with trading choices.

Moreover, they can leverage a suite of integrated research tools that facilitate tracking present market trends and informed decision-making through meticulous analysis. A full-service trading account becomes a lifeline for investors, sparing them from the exhaustive task of independently researching the entire market and arriving at trading verdicts.

To Sum Up

Whether you're an aspiring investor looking or a seasoned trader aiming for complex strategies, selecting the right trading account is paramount.No matter the choice, understanding your objectives and risk tolerance will guide you toward a trading account that aligns with your financial journey, propelling you toward success in the ever-evolving realm of trading.

Trading Account FAQs

It depends on your needs. If you want to dabble in stocks, F&O, you can opt for an equity trading account. On the other hand, if you want to engage in commodity trading, a commodity trading account is more suitable.

While you can have multiple trading accounts, you can open only one with one brokerage firm.

Yes, having a trading account and a Demat account is mandatory to trade in stock markets.

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