In order to carry out online transactions in the stock market, traders are expected to register with the stock exchange. For this reason, traders can open an account with brokers or financial institutions that trade for them in the stock market. The account will contain the history of all investments of a particular investor. Trading account serves as an online means through which an individual trades stock, bonds, securities or ETFs.
What is a trading account?
A trading account is an account that holds cash, securities or holdings of an investor. It is opened in a financial institution and managed by a broker or dealer running a trading strategy for the account owner. Also, the account provides your income statement that shows how the gross profit was generated through trading activities. It is differentiated from other investment accounts by the level of activity, the purpose of the activity and the risks involved. The activity involved in a trading account is mainly day trading (buying and selling of security within the same day in a margin account).
How to Open a Trading Account
First, select a broker that has a license and is genuine. Then fill the account opening form either online or at the bank. Submit the necessary documents (like proof of identity and proof of address) along with your filled form. After their verification, your account details will be available to you. Time taken to open a trading account depends on the verification and processing time. It can take a day or two as the case may be. You can then start making transactions and managing your account online.
Once you open an account, the next thing you will decide is whether you will run it as a cash or margin trading account.
Margin trading account involves a line of credit. That is from your brokerage firm and enables you to buy stocks or other securities or options if you want.
Cash trading account means an account through which you can place orders for investments using only the amount in your account. Credit facilities are not available here.
Why should you open a trading account?
- Is very easy to set up and fast to use (offers telephonic and online access).
- It helps investors monitor the progress of their traders.
- Allows you to set your personal trading limits and placing others will be at your own convenience.
- It provides your history of transactions, research tools and technical analysis.
- The account gives you control and enables you to take the risks you want with your investment.
There are many types of online accounts which you can use for trading stock, currencies, gold, ETFs and others. They include Online Forex account, Commodities account, Equity account, Stock account and Derivative trading account.
Lower cost of online trading compared to the traditional method and high speed of execution of orders and much more are all that you benefit from running an online trading account.