The main application of trading accounts arises when an investor has to sell or purchase equity shares in the stock market. Earlier, the stock exchange operated on an open outcry system. This system allowed traders to use hand signals as well as verbal communication in order to signify their buying and selling decisions. Trading accounts replaced the system post the integration of the electronic system in the stock market.
In the new digital method, the buyers and sellers do not have to make a physical presence at the stock exchange in order to place their orders. They can open an open trading account digitally by using a registered stock market broker; the professionals perform trading on your behalf. In this article, we will tell you everything you need to know about opening a trading account.
The Operations of the Trading Account
Trading accounts work to connect the bank account and Demat account of the investors. In scenarios where investors need to purchase shares, he or she places orders through the trading account. Thereafter, the transaction is sent in the stock exchange for processing. Once executed, the essential shares are credited into the relevant Demat account and the exact amount gets deducted from his or her bank account.
A similar process is followed to sell the equity shares. For instance, the investor positions a sale order for 100 shares through an online trading account. The account is sent for processing in the specific relevant stock exchange. Furthermore, when the order is processed, the relevant number of shares are debited from the demand account and the same amount gets credited to the bank account.
Document Requirements for Trading Accounting
Trading account is a connector between your saving bank account and Demat account. The procedure of opening an account and the required documents are the same across different organizations. Prior to submitting any document, make sure that it remains valid on the date of the submission.
You need to submit one of the following documents:
- Certificate of Net Worth
- Photocopy of annual account statements
- Form 16 or salary slip of the relevant month
- A photocopy of the Income Tax Return Acknowledgement slip
- Latest bank account statement containing six months of income history
- Documents that verify the ownership of your assets via self-declaration.
To prove your identity, you need to submit one of the following documents –
- PAN card with a valid photograph.
- Voter ID, Driving license Aadhaar card or passport
- Identity card with photo, which is issued by state or central government, professional bodies, credit or debit cards, etc.
Following are the documents that you may need to submit as your address proof –
- Utility bills such as electricity or gas bills or landline bills which are less than three months old.
- Passport, ration cars, voter ID card, sales agreement of the residence, registered lease, flat maintenance bill, insurance copy, or driving license.
- Bank passbook which is not older than 3 months
- Address proof issued by bank manager of Scheduled Commercial Bank, Multinational Foreign Banks, Scheduled Co-Operative Bank, Gazetted Officer, Member of Legislative Assembly, Notary Public, or Member of Parliament.
- Address proof in the name of your spouse.
Opening a trading account makes your trading experience more organized. Now that you know how a trading account works, you can make a knowledgeable decision.