Article Categories
Login

Why Trading Account is important in Stock World?


Indian stock market trade runs on the wheels of demat and trading account which are mandatory if you ride in the world of stocks. Many new investors are often eager to know the relationship between them. The most common concern for them is that why there is a need for trading account if I have my bank account to pay the money and buy the shares. The article guides you through the relation between the two. Well, the difference will be evident soon enough.

Stock trading came into existence during the British era where trade used to take place manually during the olden days where traders used to stand on the floor and shout prices of stocks for buying or selling. The money would then be exchanged for physical receipts of the shares called the “Share certificate” which also involved the time consuming process of delivering these certificates. It was in 1996 when the Government of India embraced the process of dematerialization by which physical share certificates held by an investor are converted into an equivalent number of securities in electronic form and credited into the investor’s account. This account is known as “DEMAT” Account. Now, whenever you go in to open a Demat account, the Bank (or any other Depository Participant) will offer to open a Trading Account as well.

Understand that when you buy share you can store in your Demat account. But for buying and selling shares, you need to have a separate accounting which is termed as “Trading account”. In other words, a Demat account is like a storage facility while a Trading Account is the transacting medium to buy and sell shares.

So even though you have significant units of shares of different scrips (shares of a particular company) and you don’t feel the need to get into stock trading, you still need to have this account. Trading account is the only medium through which you will be able to sell the shares that you are holding in a Demat account. It is the intermediary between your Bank account and your Demat account for buying and selling shares in the share market and is handled by the Depository Participant or the stockbroker that you have chosen. For buying shares, the account takes money from your Bank account and buys shares which are then transferred to your Demat account. In the same way for selling shares, the account takes shares from the Demat account and sells them in the stock market. The capital generated is then sent to your Bank account.

Various financial institutions offer flexible options such as to open a Demat Account as well as trading accounts either independently or at the same time. This is called a two-in-one account. While some offer the three-in-one account option – demat, trading as well as a bank account. This means, you don’t have to open three separate accounts, instead you can trade on a single application form. The advantage is that you don’t have to manually keep transferring money to your trading account from your bank account. Major benefit is the annual maintenance charges can be waived off depending on your trading activity and the amount of securities held. Besides it offers less paperwork and quick fund transfers for trading. Make sure to check the charges if you’re trading activities would be few and far in between and also look for reviews on the quality of services provided by a Depository Participant.

In Intraday charges are applied on every trade you make where both buy and sell transactions take place on the same day. Delivery Trade charges are applied on trades where you buy shares on one day and sell those after a day or even a month or even hold them for a longer duration depending on your own preference. Besides there are loan pledge, account freezing, ad-hoc statements, options trading, failed transactions as well as charges for facilities like SPEED-e or Easi (for electronic instructions).

So, it is important that you carefully scrutinize all the available options before deciding on a particular Demat and Trading account. Trading is complex yet exciting world. It is necessary to understand each and every aspect when it comes to stock trading only then you’ll be able to enjoy the essence of real trade.

Source: http://www.spundge.com/story/93208/