Trading Account
As you probably know, demat account is essential for holding your securities in today’s digital age. But note the careful use of words! A demat account, while it may allow you to hold your securities, will not allow you to ‘transact’ - that is, buy or sell securities. For that, you’re going to have to open a trading account.
A trading account is mainly known to facilitate multiple objectives that are essential for all types of trading - right from helping you manage expenses to keeping a careful control of your choice of transactions. As the name suggests, a trading account helps customers trade in securities.
Investors use a trading account for transactions involving stocks, commodities and other securities. A trading account is typically used by traders to speculate about the movements of the assets, with an expectation of a decent profit.
Trading account - key points
- A trading account is mainly known to facilitate multiple objectives that are essential for all types of trading - right from helping you manage expenses to keeping a careful control of your choice of transactions.
- A trading account is typically used by traders to speculate about the movements of the assets, with an expectation of a decent profit.
- There are two types of trading accounts: a securities / standard trading account and a commodities trading account.
Trading account - application (use )
The most popular reasons why traders tend to use their trading accounts:
- Day-trading activities
- Long term investment
- Retirement savings
- Education and health insurance planning
Many more uses of trading account but the main uses is listed above.
Trading account - types
There are mainly two types of trading account they are :
A Standard trading account covers all the basics. It allows you to trade equity intraday and delivery, futures & options, mutual funds, exchange-traded funds (ETFs) and currency futures. This is ideal for short-term traders leveraging their funds at a high frequency.
A Commodity Trading account is one you’ll need to open if you’re planning to trade in commodities such as gold, silver, crude oil, and copper. A commodities broker is who you need for this process. A commodities broker is an individual broker or a firm that is a trading member of a recognized commodity exchange like the MCX. With a commodity trading account, you can trade commodity futures, and therefore would not need this to be linked to your demat account.
A Commodity Trading account is one you’ll need to open if you’re planning to trade in commodities such as gold, silver, crude oil, and copper. A commodities broker is who you need for this process. A commodities broker is an individual broker or a firm that is a trading member of a recognized commodity exchange like the MCX. With a commodity trading account, you can trade commodity futures, and therefore would not need this to be linked to your demat account.
Trading account - advantages
There are various advantages of the demat account
1. Lower fees
One of the clearest advantages of online trading is the reduction in transaction costs and high fees associated with traditional brick-and-mortar brokerage firms. Typically, you’ll buy and sell stocks and exchange-traded funds at online discount brokerages, according to a Bloomberg report.
2. More control and flexibility
Time is often of the essence when you trade stocks, so the speed of using online trading portals is a benefit to many investors. With online trading, you can execute a trade almost immediately. Traditional brick-and-mortar brokers might require appointments, either online, over the phone or in person, just to initiate a trade.
3. Ability to avoid brokerage bias
By taking trading into your own hands, you can eliminate brokerage bias. Bias sometimes occurs when a broker gives financial advice that benefits the broker — such as in the form of a commission for selling specific mutual funds and other products.
4. Access to online tools
In the world of online trading, a lower cost does not necessarily mean a shoddy product. Many of today’s online trading companies offer customers an impressive suite of tools providing valuable information and helping optimize trades.
5. Option to monitor investments in real time
Many online trading sites offer stock quotes and trade information that make it easy for people to see how their investments are doing in real time.
Trading account - disadvantages
1. Easier to invest too much too fast
Online trading is so easy - you basically push a button
Online trading is so easy - you basically push a button
There is the risk of making poor investment choices or over-investing.
Online investors can protect themselves by understanding the stocks they are buying and setting up safeguards in fast-paced markets. Placing a limit order on your account is one way to control what you buy and how much of it.
2. No personal relationships with brokers
From getting help on how to create an investment strategy to understanding how the results of feedback mechanisms affect the market, online traders are left to their own devices. For some, this kind of autonomy can be unsettling.
Experts often stress the importance of research, particularly for new traders. You need to learn as much as you can about the companies in which you invest.
3. Addictive nature
Online traders can experience a certain high when trading that is similar to what people experience when gambling, according to a recent study on excessive trading published in the journal Addictive Behaviors. The study noted that some investors choose short-term trading strategies that involve investing in risky stocks offering the potential for large gains but also significant losses. “The structure itself of the two activities (gambling and trading) is very close,” the study concluded.
4. Internet-dependent
The nature of online trading means that, ultimately, you’re at the mercy of your internet connection. If the internet connection is too slow or is interrupted, you can lose out on a potentially important or lucrative trade.
5. Buying errors due to computer missteps
With online trading, to simply assume a trade was not completed can cost you money. Investors who believe their trade was not completed might make the trade again and end up investing twice as much as they intended. Assuming a trade was completed without seeing confirmation of the fact also is a mistake. Make sure you understand how to verify trades and review statements before you begin using an online investing system.
Online investors can protect themselves by understanding the stocks they are buying and setting up safeguards in fast-paced markets. Placing a limit order on your account is one way to control what you buy and how much of it.
2. No personal relationships with brokers
From getting help on how to create an investment strategy to understanding how the results of feedback mechanisms affect the market, online traders are left to their own devices. For some, this kind of autonomy can be unsettling.
Experts often stress the importance of research, particularly for new traders. You need to learn as much as you can about the companies in which you invest.
3. Addictive nature
Online traders can experience a certain high when trading that is similar to what people experience when gambling, according to a recent study on excessive trading published in the journal Addictive Behaviors. The study noted that some investors choose short-term trading strategies that involve investing in risky stocks offering the potential for large gains but also significant losses. “The structure itself of the two activities (gambling and trading) is very close,” the study concluded.
4. Internet-dependent
The nature of online trading means that, ultimately, you’re at the mercy of your internet connection. If the internet connection is too slow or is interrupted, you can lose out on a potentially important or lucrative trade.
5. Buying errors due to computer missteps
With online trading, to simply assume a trade was not completed can cost you money. Investors who believe their trade was not completed might make the trade again and end up investing twice as much as they intended. Assuming a trade was completed without seeing confirmation of the fact also is a mistake. Make sure you understand how to verify trades and review statements before you begin using an online investing system.
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