Things to Consider Before Opening a Trading Account

Are you a new student in the financial market who wants to open a trading account? It can initially seem daunting because there are various factors to consider in this field. Do your homework and learn the basic concepts of trading. Trading is the fundamental act of buying and selling financial instruments. Traders deal in stocks, bonds, etc, to make a profit. These instruments have a designated value that goes up and down. A trading account in the investment account that allows you to trade financial securities.

These key terms, like Demat Account, are essential for building solid foundational knowledge about a trading account. You need to open a trading account before seeking the opportunity to start trading. To help you get started, we have listed the fundamental factors about the Trading account that you need to know.

What is a Demat Account? 

A demat account is an electronic space where you can hold your investments of stocks, bonds, mutual funds, etc., in a digital format. This electronic account eliminates the need to keep a physical certificate and allows the efficient management of your investments. 

Difference Between Demat Account and Trading Account 

The major difference between Demat and Trading account is listed in the table below-

Particulars	Demat Account	Trading Account
Function	A Demat account is used to store shares and other securities electronically.	The trading account is used to buy and sell securities like shares, derivatives, etc..
Nature	A demat account is used for the safekeeping of securities. There is no frequent activity unless buying or selling.	A trading account is just like a regular bank account, where consumers deal with buying and selling securities. It is frequently used for executing market transactions.
Objective	A Demat account's main objective or work is to serve as a digital space to hold investments in a safe manner.  It allows investors to store their securities electronically and eliminate the hassle of physical storage.	The primary objective of the trading account is to facilitate trading by placing orders for buying and selling securities. Investors can easily engage in market transactions.
What it Holds	Stocks, mutual funds, ETFs, bonds, IPO shares, government securities, etc.	Funds for trading and transaction records. Trading Account does not hold securities directly.
ManagedBy	Depositories -  NSDL (National Securities Depository Ltd) or CDSL via Depository Participants.	Stockbrokers registered with SEBI (Securities and Exchange Board of India).

Documents required for opening a Trading Account

1. Documents for Proof of Identity (POI)

   
   

You need to collect the following documents for POI purposes while opening a Trading account 

• Passport

• Voter's ID card

• Aadhaar card

•  PAN card

2. Documents for Address Proof

   
   

You are required to provide proof of your correspondence and permanent address. If both are different, you need to submit various documents. This is to verify your residential status. You must submit the following documents while opening a trading account.

• Rent Agreement

• Resident Indian Passport 

• Bank Statements

• Utility Bills

• Aadhaar Card 

• Voter ID card 

• Driving license 

3. Documents for Proof of Income

If you decide to activate the Futures and Options (F&O) trading. You are required to submit the following documents for proof of income. 

• Salary slips / Form 16

• Income Tax Return (ITR) copies, along with acknowledgement receipts

• Annual income statement audited and certified by a Chartered Accountant (CA)

• Bank account statement for the last six months, duly stamped

• Demat account holding statement

4. Other Documents 

   
   

To activate your trading account, you need to submit bank proof, photographs, and in-person verification. The following are the documents you need to consider. 

• Cancelled cheque with your name printed

• Bank passbook copy

• Bank statement with IFSC and MICR code

• Recent passport-sized photographs (usually 1–2 copies)

• IPV Required either physically or via video KYC, depending on the broker

Process of Opening a Trading Account 

1. Choosing a Stock Broker: You can select your best stock broker from the market's pool of stockbrokers. There are mainly two kinds of brokers. 1st Discount Brokers and 2nd Traditional Brokers.

   
   

2. Compare Brokerage Rates and Services: You can compare the different brokers to select the best one. The traditional brokers give you a trading account and extra services of advice, recommendations, and research information. However, discount brokers provide you with a trading account and basic tools to make an informed trading decision. 

   
   

3. Select the Right Broker and Proceed to Opening the Demat Account: Contact your broker online and go to the trading account section to sort out the procedure details. 

   
   

4. Application Form and KYC: Enter your mobile number and email ID. Verify them using the OTP sent to your phone/email. Then, fill in the personal details like PAN number, Aadhar number, Date of birth, gender, marital status, income, etc. Also, upload the documents mentioned above. 

   
   

5. Application Verification Process: After you submit the application form, your stockbroker will verify the documents and activate the trading account (usually within 24–48 hours).

   
   

6. Trading Account Details Assigned: Once your account is opened, you will get a confirmation from the broker along with your login credentials. You can access your trading account to view live share prices and buy your favourite company’s stocks. 

Conclusion:

You should consider opening a trading account to kickstart your investment journey. However, it should be carefully done with an understanding of all crucial factors, You need to consider the broker’s credibility, trading platform features, and the process of opening the account, etc. You must learn the fundamental trading concepts and open a demat account to invest wisely. The trading account selection impacts your investment experience, costs, and long-term financial success. Therefore, you should make a smart choice that aligns with your investment goals.