How does a Trading Account Work

The trading account looks so straightforward. You put an order and it is executed in a jiffy. But there is a huge process that goes on in the background. Let us look at how the trading account works in practice and how the equity and cash move in markets. To understand how a trading account works, we will look at the entire process flow of the trading.

Trading account working is a lot more about the process and synchronizing and coordination by several bodies like brokers, clearing members, clearing corporations, stock exchanges, depositories, depository participants, etc. Let us look at the trading account working in greater detail.

How does a Trading Account Work

The most important thing about the trading account or more specifically online trading is not the technology or the speed. Online trading puts the customer at the center of the entire piece. That is where the real importance of online trading comes in. Here is why the mechanism of a trading account empowers you.

Trading account operation is very simple and customer friendly

If you are an online trader, the trading account is absolutely simple, You just need your user name your password, and your second level of authentication to start trading. What is more, you can access your trading account on your PC, laptop, smartphone, and notepad. Nowadays, a simple Stock Trading App is good enough for your Android or Apple. Of course, online security and secured connection are your responsibility.

Now you are in full control of the trading value chain

What does it feel like to be the master of the process? That is what you are as a trader in the online trading world. Once you open and start your trading account online, you are in full control. You are the one who places the order and also defines the quantity and price. You don’t depend on a dealer or trader to place orders. You may not be able to get across to the dealer and you no longer have to worry about that. In short, you have total and absolute control over the full chain of your investments and you can use your judgment to the hilt.

Use of a trading account online is also economical and cost-effective

Brokers offer lower brokerage on internet trading since most tasks are done by you and the broker does not have to spend on dealers and traders. The broker does not have to maintain front office infrastructure and just a back-end call-n-trade facility is good enough for online traders. Such cost savings are passed on to you.

With the trading account, you are all set to place orders from anywhere

Geography is not a constraint any longer. It does not matter whether you are in Delhi, Rajkot, Chennai, or even in Dubai. You can access your trading account from anywhere and avail yourself of services like buy orders, sell orders, modify orders, MIS reports, etc. The online trading platform virtually becomes a 24X7 trading platform for you. You can also place orders at midnight and it gets executed when the trade opens, subject to trade conditions.

You are free to place an order, modify and also cancel the order with a click

The trading account virtually allows you to place the order at the best price or you can place the limit order and wait for the price. Both are fine with the system. You can also place IOC orders. If the order is not yet executed, it will still be there in the order book but not reflected in the trade book. Hence, you are at liberty to modify the price and quantity or you can also cancel the order. All that is only possible till the order is executed. After that, the position can only be reversed.

You can see the order execution end to end

Transparency is the big factor here. You see the bids and you see the order is executed on the screen right in front of your eyes. You can open the Order book and check your pending orders and make changes if required. You can also access your trade book and take a look at orders and verify if the execution is as per your needs.

You can get access to a vast array of online tools

Online trading, in most cases, is not just execution but also research ideas and screeners. You have endless tools. There are screeners to shortlist stocks. There are technical charts to get levels to trade. There are trading levels for short-term traders. There are also analytical tools to help you shortlist stocks based on more complex criteria.

Trading account, bank account, and Demat account form one single chain

No cheques, no DIS slips, and no contract notes are needed in physical form and it all happens like one endless chain. You can fund your trading account online with your bank transfer using the gateway or by using the NEFT / IMPS facilities. The shares automatically go into your Demat account on T+2 day, which is the second trading day after the purchase. Similarly, when you sell shares, these shares are automatically debited to your Demat account on T+1 day and the credit to your bank account comes on T+2 day.

Finally, a trading account is an important part of clearing settlement

The trading account also plays an important part in the clearing and settlement process. The clearing member pay-in or pay-out is based on all trading accounts. Once the clearing corporation ensures that you have funded against purchases or given Demat delivery against shares, only then the respective free shares or free funds are transferred to you.

Importance of a Trading Account

The trading account helps you to participate in the capital markets. It is flexible in that you can buy and sell equities, futures, options, currency derivatives, index futures and options, gold ETFs, index ETFs, etc using your trading accounts. You don’t need a trading account to invest in an IPO but you need a trading account if you want to sell the shares. Look at the trading account as your flow account that records all your equity buys and sells plus other assets. It is your gateway to creating wealth through the power of equities.

Who Can Open a Trading Account?

To open a trading account, you need to sign the accounting opening agreement. Hence you need to be a major above the age of 18 and must not be barred from entering into contracts due to any other reason specified in the Indian Contracts Act. You need basic KYC documents to open trading account and you’re just ready to go.

Frequently Asked Questions

What is the minimum balance I have to maintain In my trading account?

There is no concept of minimum balance in a trading account. However, most broker would suggest that you do basic funding in your trading account to be able to take positions as an when opportunities arise.

What are the account maintenance charges?

There is no account maintenance charges for trading account. That only applies to demat accounts where an annual fee of Rs.600 to Rs.1500 is charged by the DP as AMC.