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Trading Account Opening

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 exchange. 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 transactions.

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:

  • When 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.
  • When 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 T+2 day.
  • In 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.
  • If 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.
  • There 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 trading day.
  • Trading 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 account.
  • If the net position is not zero then the shares will either result in buy-delivery or sell-delivery.
  • When you buy equity shares, the execution is done in the trading account, and the demat account gets credited on T+2 day.

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.


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