What is trading account?
A trading account is opened with a
SEBI registered broker and the trading account is used to execute buy and sell
transactions on the stock exchange. A trading account is like a flow account
and it cannot hold shares. You can only transact in the trading account and the
trading account is a must if you want to execute transactions on the stock
Brokers, normally, open a
Trading-cum-Demat account where the same set of documents are required as the
demat account. In fact, a single set of documents is sufficient to open your
trading and demat account with the broker. While the trader is free to open
trading and demat account at different places, it is always advisable to have
your trading and demat account at the same place for the sake of ease of
A trading account is a flow account;
in the sense that it records flows of transactions. Only futures and options
transactions are held in the trading account since these are contracts and do
not represent ownership. Any security that represents ownership like equities
or ETFs have to necessarily be held in your demat account only.
A single trading account can be used
to execute transactions in equities, ETFs, index futures, index options, stock
futures, stock options, VIX futures, currency futures, currency options etc.
How does the trading account work?
Once you identify the broker, an
application form has to be filled up to open the trading account. Normally,
brokers open a trading-cum-demat account with the same set of documents. To
open a trading account, the client needs to execute a “Client Member Agreement”
with the broker which lays out the brokerage rates for various transactions
like intraday, delivery, futures, options, BTST, STBT etc. The Client Member
Agreement also lays out the rights and obligations of the broker and the client
in elaborate detail. Let us now look at how the trading account works. Here is
what you need to know:
you buy equity shares, the execution is done in the trading account, and the
demat account gets credited on T+2 day.
you sell equity shares, the execution is done in the trading account, the demat
account is debited by T+2 day (If POA provided) and the bank gets credited on
you execute an intraday transaction in the trading account (long or short), the
profit or loss from the transaction is adjusted to your trading account. This
is assuming that the net position is zero at the end of the day.
the net position is not zero then the shares will either result in buy-delivery
case of futures and options (F&O) transactions, the contract remains in
your trading account till you square up the transaction with an opposite
transaction or till expiry of contract.
on F&O expiry, the position is still not closed out, then the exchange
automatically closes out your position and profits / losses are adjusted to
your account. Or as per new mechanism of physical settlement, the same is
settled as per physical settlement mechanism.
are no charges for having a trading account. However, when you transact in your
trading account (buy or sell), then there are charges like brokerage and other
statutory charges that are debited to your trading account. These charges are
clearly enumerated in the contract note that you receive at the end of each
account can be operated online (computer or mobile app) as well as offline
(branch visit or over phone). You need to specifically sign up for an online
trading account with power of attorney to your broker to debit/credit the demat
Documents required for opening a trading account
The documents required for opening a trading account
is the common set of documents needed to open a demat account and consist of:
- PAN Card
- Photograph with cancelled cheque
- Proof of identity
- Proof of residence
The above documents are sufficient to open a basic
trading account to trade in equities. However, if you also intend to trade in
futures and options, additional proof of income will have to be furnished as
per KYC requirements. This is to ensure that you understand the risks of
F&O trading and also are in a position to take that additional risk. Income
documents can be one of the following:
- Bank statement for the last 6 months
- Proof of income in the form of salary slips or
acknowledged tax returns
Once the completed trading account form is submitted
to the broker with all the documents, the broker verifies all the documents and
if they are found to ok, then the trading account is opened. Once the trading
account is opened, a unique client code is allotted. In case of online trading
account, the user name and password is also sent securely to the client. Once
the trading account is funded, the client is ready to trade.