What is a trading account?

As said in the previous lesson, Your Demat account is merely an account which keeps track of which shares or equities you have bought and you currently hold in your portfolio. So there is not much to do as far as ‘operating’ demat account is concerned.

TRADING ACCOUNT

Some of the beginners do not understand relationship between Share Trading account and Demat Account. This short lesson will explain the relationship between Demat account, trading Account and your Bank Account. We will also see how many trading or Demat account you can have in total.

  • Trading account is an interface between your Bank account and your Demat account. To buy shares, the first step is to transfer money from your bank account to trading account. For example , if you want to buy 100 shares at Rs 50 , you have to transfer Rs 5000 from your bank account to the trading account.
  • The shares that you buy will be stored in the demat account.
  • When you sell, your trading account takes back the shares from your Demat account and Sells them in Stock Market and get back the money.
  • If you want your money back into your bank account, you have to give a request online to the broker to transfer it to Bank account. The money gets credited in your bank account in 2 or 3 working days.
  • Just as every person is allowed to open as many savings account as he likes, there are no restrictions of the number of Demat Accounts a person can have. You can have any number of demat accounts.

SELECTING A DEMAT AND TRADING ACCOUNT

The key criteria for selecting these accounts are:

1. Your purpose/usage. In short, how frequently are you going to buy/sell and is it intraday or delivery based. You may have to choose the Broker whose charges are lowest according to your transaction style.

2. Look at a complete solution and not just one individual product like a demat account. After all, the money in the savings account will be linked to your trading account for buying/selling shares and the trading account will be linked to your demat account for storing the shares. Suppose you have a Savings account with Bank A, and the trading account with Broker B and Broker B trading account does not have a partnering arrangement with Bank A, you will be forced to open a new savings account with a bank which has partnering arrangement with broker B. Usually, most non-bank brokerages have tie-ups with the popular banks for savings bank accounts and demat accounts, but brokerages in a banking group company may have only the same bank as its partner.

3. Think long term. In case you have got yourself a demat account and you have existing shares in it and you want to move to another demat account, transfer of shares is chargeable. Brokers may charge based on number of shares or amount worth or anything. Please find out what this amount is, in case you are ever tired of bad service and you want to change the demat account. These transfer rates are never mentioned anywhere.

4. Technology. Some online stock brokers do a great job in making sure that their clients can always access their accounts, and in turn buy and sell as quickly as possible. But on the other side of things, not all brokers run this smoothly. Due to excess demands on the system, some brokers have a slower load time than others. In fact, this can lead to the server becoming bogged down. This is not common as it once was, but still this can happen.

5. Service. With the demand increasing on discount stock brokers, it is common for errors to occur from time to time. Hopefully this never happens to you, but you never know what the future holds. If you notice a mistake on your account, it is important that you contact the customer support team right away. This will help to ensure that you get the issue worked out before it causes a snowball effect on your account. In most cases, the broker you are working with will be apologetic for the mistake, and will do whatever it takes to get the issue resolved within a matter of minutes. Also, Gauge the level of personal service that a stockbroker provides as a final step in the selection process. Every investor should be assigned a specific broker or representative to contact at any time.

CONCLUSION

Hope you are now clear about demat and trading accounts and about how to choose an account.Shopping around for your broker is a good idea.

You may like these posts:

  1. What are Demat accounts?
  2. Investing vs Trading vs Speculation
  3. Benefits of owning shares

3 Responses to “What is a trading account?”

S. Singh

April 24, 2013 at 3:38 pm

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virender

February 6, 2014 at 3:54 pm

thanks

p.vinothprabu

September 19, 2015 at 9:51 pm

good one i got clear abt this thnks

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