What is a Trading Account?
A trading account has to be seen as distinct from a demat account. The demat account
holds your shares purchased in custody. The trading account is required for actual
buying and selling of shares. You trading can be offline or online. In offline trading,
you either walk to the broker’s office or place orders over the phone. In case of
online trading, the trading account is operating through the internet and can be
accessed using your PC, laptop, smart phone or tablet.
An equity trading account is sufficient to trade in equities, futures, options,
ETFs, RBI Gold bonds etc. You will need a separate Commodity Trading account to
trade commodities, although there could be a common trading account soon since both
equity and commodity markets are now regulated by SEBI. If you want to trade in
futures and options then you do not require demat account and just trading account
will be sufficient. However, demat account is a must if you want to trade and take
delivery in equities. Nowadays brokers typically open a 2-in-1 account where common
documentation is done for trading account and demat account opening. Some brokers
with group banking facilities like HDFC and ICICI also open 3-in-1 account which
also includes bank account.
Procedure for opening a trading account:
The following are the key steps in opening a trading account.
• Your task of opening a trading account begins with comparing brokerage rates,
research and other ancillary services before zeroing in on your preferred broker.
• Once the broker is identified, the trading application form can be procured from
the broker’s office or downloaded from the broker’s website.
• The next step is to fill up the form and complete the KYC (know your client) formalities.
You need to submit your proof of address and proof of identity apart from your PAN
Card and photographs. Now it is compulsory to link your trading account with your
• Once the application is verified and all the documents are in order, the application
is approved and the Trading id is allotted to the customer. In online trading accounts,
this trading is automatically linked to a bank account and to a demat account. All
cash debits and credits will only be permitted through that particular bank account.
Similarly, all security debits and credits will only be permitted through the designated
Additional documentation before activating F&O trading:
Once the above formalities are completed, then you are good to start trading in
equities. However, in case you want to trade in F&O an additional set of documents
will be required. SEBI wants to ensure that individuals trading in F&O are aware
of the risks of leveraged products and have the financial capacity to take that
risk. Hence the broker will insist on documents like 6-month bank statement or your
last 2 years Income Tax returns before activating F&O trading in your account.
What after the trading account is opened?
Once your trading account is opened and active, you can buy and sell shares, futures,
options, ETFs, IPOs and other securities through this trading account. Your trading
account has to be funded through your bank before you buy shares. These shares will
move into your demat account on T+2. Similarly, when you sell shares, the demat
account is debited on T+1 but bank account will be credited on T+2. That is how
simple it is to open and operate your trading account.