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What are the different types of Trading Accounts in India?

11 Mins 02 Jan 2024 0 COMMENT

Trading in stocks and securities has become extremely popular in India over the last few decades. With over 3.6 crore active investors, the Indian stock markets are seeing rapid growth. To trade in stocks and other financial securities, however, investors need to open a trading account along with a demat account.

While most investors are familiar with demat accounts, trading accounts are still relatively lesser known. A trading account allows investors to buy and sell stocks and other securities. It acts as an interface between the investor and the stock exchange. 

Based on the type of securities being traded and the requirements of investors, there are different types of trading accounts in India. 

Types of Trading Accounts

The different types of trading accounts include equity trading accounts, commodity trading accounts, offline and online trading accounts, 2-in-1 trading accounts and 3-in-1 trading accounts, discount broking accounts, and full-service trading accounts.

Equity Trading Account

An equity trading account allows investors to trade in equity shares of companies listed on stock exchanges like NSE and BSE. It provides the facility to trade in equity stocks, equity derivatives like futures and options, index futures and options, etc. With an equity trading account, an investor can buy and sell shares within a single day (intraday) or take delivery of the shares for long-term holding.

While an equity trading account can be used to trade equities and derivatives, a demat account is essential to hold the shares purchased for delivery. For trading in commodities, a separate commodity trading account needs to be opened.

Commodity Trading Account

While investments in equity shares have grown rapidly in India, trading in commodities like gold, silver, metals, energy etc. has also picked up pace. However, commodity trading requires a separate trading account and cannot be done via an equity trading account.

Some key aspects of a commodity trading account are

  • It needs to be opened with a commodity broker registered with SEBI and commodity exchanges like MCX and NCDEX.
  • The account can be used to trade in futures contracts of commodities allowed by the commodity exchanges.
  • No delivery of physical commodities is involved. All contracts are cash settled on maturity.
  • Commodities traded include gold, silver, crude oil, natural gas, metals like copper, zinc, nickel, etc. and agricultural commodities.
  • Just like equity derivatives, commodity derivatives trading involves daily mark-to-market settlements. Profits/losses are settled daily.

So, investors looking to trade in commodities need to open a separate commodity trading account. Their equity trading account cannot be used for commodity trading.

Offline and Online Trading Accounts

Based on the mode of placing orders and trading, accounts can be categorized as offline and online trading accounts. An offline trading account involves calling up a stockbroker or visiting the broker's office to place buy/sell orders for shares. Orders are manually noted down and then entered into the trading system by the broker. Contract notes are received physically.

An online trading account allows buy/sell orders to be directly placed through the broker's website or trading platform. Orders are automatically entered into the markets. Online accounts provide real-time information and faster order execution. Contract notes are received electronically via email or on the trading platform.

Most investors now prefer online trading accounts due to the ease, speed, and convenience they provide. Offline accounts are slowly becoming obsolete.

2-in-1 and 3-in-1 Trading Accounts

To invest in stocks, an investor requires three accounts - bank account, demat account, and trading account. A 2-in-1 trading account reduces this to two accounts by integrating the trading and demat accounts.

A 2-in-1 account provides the convenience of seamless transfer of shares from the trading account to the demat account on purchase. When shares are sold, transfer from the demat to the trading account also happens automatically. There is no need to manually transfer shares between the two accounts.

A 3-in-1 trading account, meanwhile, integrates all three functions - bank account, demat account, and trading account - in one single account. This eliminates the need to open three separate accounts. Money can be easily transferred between a savings bank account and a trading account. Shares purchased are reflected in the demat account automatically.

3-in-1 accounts are generally offered by brokerages affiliated to banks. They provide immense convenience to investors by integrating all services into one account. KYC formalities are also simplified.

Discount Broking Account

Discount broking accounts are trading accounts offered by discount brokers who charge lower brokerage compared to traditional full-service brokers.

Salient features of discount broking accounts:

  • Charge very low brokerage, often a flat fee irrespective of volume
  • Do not provide trading advice or research reports
  • Investors need to rely on their research for trading decisions
  • Online trading facility available but no offline branches
  • Minimal account opening formalities

Due to the low costs, discount broking accounts are very popular among active traders who trade frequently in large volumes. However, they may not suit investors looking for advice or research.

Full-Service Broking Account

Full-service brokers provide a range of value-added services over and above simple execution of trades. Hence, their brokerage charges are higher compared to discount brokers.

Services offered in full-service broking accounts:

  • Personalised advice and trade recommendations from relationship managers
  • Regular research reports and tips from research analysts
  • Dashboard showing performance metrics and accounting statements
  • Dedicated relationship manager for servicing requests and queries
  • Options tips, IPO financing, loans against shares, etc.

Full-service accounts are preferred by investors who are new to trading and need handholding and advice. Seasoned investors may also use them for their research services. But trading costs are higher.

Conclusion

Trading accounts are the gateway to investing in stocks, commodities, and other financial securities in India. Based on trading needs, risk appetite, and costs, investors can choose from equity, commodity, offline, online, discount, and full-service trading accounts. Regulations mandate that trading accounts need to be opened only with SEBI-registered brokers. Investors must evaluate brokers based on costs, services, and grievance redressal before opening a trading account. Choosing the right trading account will ensure a smooth investing journey.

 

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Name of the Compliance officer (broking): Ms. Mamta Shetty, Contact number: 022-40701022, E-mail address: complianceofficer@icicisecurities.com. Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.