How to open online trading account – With increased financial literacy, an increasing number of people are investing in financial assets such as stocks and bonds. Investing in the capital market also helps in portfolio diversification. Equity has historically given good returns over the long term. To invest in the equity market, you need to have a trading account, a demat account and a bank account, apart from proper financial knowledge.
What exactly is a trading account?
When you invest in the stock market, you are buying shares in exchange for money. Certified Depositories hold the shares bought by the investors. These depositories provide investors with unique demat accounts that store their stock holdings securely. When a shareholder sells the shares, the shares are removed from the demat account.
What is the role of trading account when shares are held in demat account and funds are transferred from bank account? The trading account connects the demat account, bank account and the investor. Trading account provides the facility of buying and selling of shares. If you want to trade in equity shares, you must first open a trading account. If you subscribe to a public offering, you do not need a trading account as the shares are automatically transferred to the demat account if allotted. However, to buy or sell other shares, you will always need a trading account.
How do I open a trading account?
To open a trading account, you must first choose a broker. Brokers are classified into two types: discount and full-service. basically. The classification is based on the type of accounts they offer. Discount brokers offer no-frills trading accounts that allow only buying and selling of shares without any value-added services. Along with the trading account, full-service brokers provide research, recommendations, financial data, and many other services.
After deciding on the type of broker, consider its market credibility. Fraud in the stock market is not common in India, but it is not unheard of either. Along with reliability, consider proximity to the broker’s office and trading software interface. Software interface is important because a clumsy interface can be an annoyance when trading.
After you have decided on a broker, you can either visit their office and request a physical form or fill up an online form on their website. A representative from the brokerage firm will assist you with the application process and inform you about the required documents. Most of the brokers offer a demat-cumulative-trading account. You can trade only options and futures without a demat account, but to trade equity you must have a trading account.
Documentation is required.
To open a trading account, you need to provide proof of address and proof of identity like most other services. PAN card is required to open a trading account. You can provide proof of identity by submitting a passport, voting ID, driving license, or Aadhaar card. Documents like telephone bill, electricity bill and water bill can be used to verify the address.
For manual KYC process, a photocopy of PAN card, address proof and identity proof needs to be submitted along with the original. Some brokers also do telephonic or manual verification.
The broker activates the trading account in 3-4 days after the application and documents are accepted. There is an alternate method if you do not wish to submit physical copies of the documents.
If you want to avoid manual KYC, you can use Aadhaar card to do e-KYC. To use the e-KYC method, ensure that your Aadhaar card is linked with your PAN card and bank account. The mobile number linked with Aadhaar card should match with the mobile number entered in the trading account application.
Aadhaar verification is completed online using a one-time password. You will also need to upload a copy of your PAN card and canceled cheque. After submitting the documents, you need to get yourself verified either through video conferencing or by visiting the nearest branch of the broker.
With the advent of the internet, opening a trading account and investing in the markets has become easier. Brokers have simplified the trading process, thereby increasing participation in the capital market.