TRADING
ACCOUNT SETUP
(BANKING AND BACK OFFICE OPERATIONS)
CONTENTS
● Definition of a Trading Account
● Meaning of a Trading Account
● Format of a Trading Account
● Features of a Trading Account
● Trading Account vs Demat Account
● Drawbacks of a Trading Account
● Milestones
● Conclusion
DEFINITION:
According to Investopedia, a trading account is an
online account that allows investors to buy and sell
securities and other investments. It's a gateway to the
market that allows investors to monitor market
movements, manage their portfolios, and execute
trades.
MEANING:
❖ A trading account is a financial tool that allows you to buy and sell securities on a stock exchange. It's an
account that you open with a stockbroker who is a member of a recognized stock exchange.
❖ A trading account is an investment account that allows individuals or entities to trade securities, such as
stocks, bonds, or futures and options. It serves as a gateway for conducting transactions in the stock
market.
❖ A trading account is an online account that allows investors to buy and sell securities like stocks,
commodities, and foreign exchange. It is a primary tool for day traders who buy and sell securities
within a single trading session.
FORMAT OF A TRADING ACCOUNT:
❏ The trading account is generally prepared in a T-format, which consists of two sides: Debit Side: All
direct costs are recorded, such as opening stock, cost of goods purchased, and other direct costs. Credit
Side: Includes revenue items, such as sales and closing stocks.
❏ It is a part of the final accounts of the entity. In other words, the trading account gives details of total
sales, total purchases and direct expenses relating to purchase and sales. Trading account format for the
year contains Particulars, Amount, Dr., Cr., Purchases, Sales, etc.
❏ The trading account is generally prepared in a T-format, which consists of two sides:
❏ Debit Side: All direct costs are recorded, such as opening stock, cost of goods purchased, and other direct
costs.
❏ Credit Side: Includes revenue items, such as sales and closing stock.
FEATURES OF A TRADING ACCOUNT:
A well-structured trading account setup format on a stock exchange provides several merits including: easy access
to the market, streamlined transactions, real-time information, clear tracking of investments, reduced paperwork,
enhanced security, the ability to diversify investments, and convenient order placement; essentially allowing
investors to buy and sell securities efficiently with minimal hassle and clear oversight of their portfolio.
Key benefits of a trading account format:
❖ Accessibility: Provides a single point of access to various stock exchanges and markets, allowing investors to
trade across different securities from one platform.
❖ Transaction Efficiency: Enables quick and seamless execution of buy and sell orders through a user-friendly
interface, minimizing delays and facilitating fast trading.
❖ Portfolio Management: Provides a centralized platform to monitor and manage investments across various securities, tracking profits
and losses effectively.
❖ Reduced Paperwork:Eliminates the need for physical share certificates, minimizing administrative tasks and potential errors
associated with paper-based transactions.
❖ Security: Secure electronic storage of shares within a demat account, reducing the risk of loss or theft of physical certificates.
❖ Market Access: Grants access to a wide range of financial markets, including stocks, commodities, and derivatives, enabling diverse
investment strategies.
❖ Research Access: Provides access to real-time market data, news, analyst reports, and research tools to make informed investment
decisions.
❖ Liquidity: Allows for quick buying and selling of securities due to the readily available market for most listed stocks.
❖ Cost-effective: Reduces brokerage fees and other transaction costs associated with traditional trading methods.
❖ Transparency: Clear view of all trading activities with detailed transaction records, promoting accountability and trust.
Trading Account Vs. Demat Account
Aspect Trading Account Demat Account
Used for buying and selling Used for storing securities in
Primary Purpose securities in the stock market. electronic format.
Works like a current bank Works like a savings bank
Function account. account.
Links to Demat and bank
Contents accounts.
Hold securities and shares.
Requires funds transfer to and Does not require any balance or
Funds Management from bank account. minimum shares.
Allows conversion of electronic
Allow access to various stock
Market Access exchanges and platforms.
securities to physical form and
vice versa.
DRAWBACKS OF A TRADING ACCOUNT
Key points about trading account drawbacks:
Market volatility: Stock prices fluctuate significantly, which means you can lose money
quickly if the market moves against your position.
Margin trading risk: Using leverage (margin) allows you to trade with borrowed
money, amplifying potential losses if the investment goes down.
Trading costs: Brokerage fees and commissions on each trade can eat into your profits,
especially for frequent traders.
Time commitment: Actively managing a trading account requires constant monitoring
of the market and making informed decisions.
Psychological pressure: The pressure of making quick decisions in a volatile market
can lead to emotional trading and poor choices.
Security risks: Online platforms can be susceptible to hacking or unauthorized access
to your account.
Lack of diversification: Focusing on a few stocks without proper diversification can
increase risk.
MILESTONES
Milestone 1: Research the process of opening a trading account with uniform
documentation.
Milestone 2: Design a checklist for trading account setup and compliance.
Milestone 3: Simulate account setup using a case study.
Milestone - 1
Research the process of opening a trading account with uniform documentation.
How to open a trading account ?
Approach any SEBI and exchange registered entity
for opening Trading Account. It can be a bank or a
stock brokers, such as Bajaj Financial Securities
Limited. They’ll require you to fill an account
opening firm that you can complete online within
minutes. You just need to ensure to keep certain
documents handy. You can start buying and selling
shares in the stock market once you have your
trading account.
Step 1: Choose a stockbroker
There are plenty of stock brokers offering you the option to open
trading account. There are 2 kinds you need to choose from:
1) Traditional brokers
2) Discount brokers.
Step 2: Compare brokerages rates and services
provided
Traditional brokers will offer you trading account along with
additional service such as advisory, recommendations and
research reports, etc. Due to the extra services, the brokerage
levied on your trade transactions will be higher. Discount brokers
provide you with trading account and access to basic tools which
you can use to make trade decisions by yourself. As a result, they
charge lower brokerage, generally a flat fee per trade irrespective
of the transaction value of the trade.
Step 3: Get in touch with selected broker for account opening
Gone are the days of offline account opening. Now you can get in touch with a stockbroker online and visit their account
opening section. You can also check their service numbers and call them to sort out any query and also to understand the
promptness of service.
Step 4: Fill account opening & KYC Form
Once zeroing on the choice of broker, next you fill an online account opening form. With Bajaj Financial Securities you can
open a trading account online in less than 15 minutes by following the below steps:
1. Visit account opening form
2. Provide your PAN details and fill your name, contact number, email, etc.
3. Add your address details, and bank details.
4. Upload KYC documents for proof of identity and proof of address, a photo,
signature, and the documents for bank details, like cancelled cheque or bank
statement. If you want to opt for Futures & Options trading, then Income proof has
to be submitted in addition.
5. Do an In-Person Verification. Record a short video of yourself and submit.
6. E-sign the document using Aadhar registered mobile number.
Step 5: Application verification process
The online application you fill for Demat & Trading account is reviewed by the verification
team at the broker's end. The details filled in the application form is matched with the
details in your proof document. Any deviation from the proof document can lead to rejection
of application.
Step 6: Get your trading account details
Once your account is opened, you will receive a confirmation along
with login credentials. You can access your trading account and
view the live share prices, create watchlist, and buy shares of your
favourite companies. But before that you will need to add money
into your trading account from your bank account.
Step 7: Place buy/ sell order
Once your account is opened, you can login to your account and
start buying and selling shares. Also, a Power of Attorney (POA)
form will be sent to you by the stockbroker. It is a document that
you need to print, sign and send to the stockbroker. It authorizes
th stockbroker to debit shares from your account whenever you
place a sell order. As per the regulations, Power of Attorney (POA)
authorization is required to facilitate the sell instruction from your
account.
Documents required to open Trading Account
For opening a Demat & Trading Account online with Bajaj Financial
Securities Limited, you will need the soft copies of identity proof and
address proof. PAN card is also mandatory to open a trading account.
Proof of Address: Any of these documents can be provided as addres proof-
Passport, driving license, voter ID, Aadhaar card with masked Aadhar
number or last 3-month bank statement.
Proof of Identity: Any of these documents will serve as proof of identity:
PAN Card (mandatory), Passport, Driving License, Passport, etc.
Apart from these, there are some other documents required to open trading
account. Irrespective of the stockbroker you choose most of them will ask for
the same documents. Generally, a user can be KRA verified or KRA non-
verified. A user who already has a Demat & Trading Account or is investing
in mutual funds, they will come under KRA verified status. For these users,
the documents require will be fewer. For example, they will no be required
to provide address proof. Similarly, if a user is willing to trade in Futures
and Options, they need to necessarily provide income proof at the time of
account opening. So, apart from the address proof and identity proof, below
are the documents required to open trading account -
1. Photo
2. Signature on white paper
3. Bank details- Cancelled cheque, bank statement with IFSC code and bank account
no.
4. Income proof - for F&O trading (Anyone: 6-month bank statement, 3-month salary
slip, Net-worth certificate, Holding report, ITR statement or Demat holding statement).
Trading Account Charges
Below are the brokerage charges for different subscription packs associated with BFSL
Demat and Trading Account:
FREEDOM PACK
Yearly Subscription Charge: 1st year:
Free
2nd year onwards: Rs. 431
Demat AMC: Free
Brokerage Charges: Rs. 20/ order (Equity Delivery, Intraday and F&O)
MTF Interest Rate: 18% p.a.
Products Included:
• Equity
• Derivative
• Margin Trade Financing
MILESTONE - 2
Design a checklist for trading account setup and compliance.
Checklist for trading account setup and compliance:
Securities trading can be a financially and mentally rewarding experience, but only if you have the time and tools to
properly research each trade. To make these trades, you'll have to work with a licensed stockbroker, either online or in
person. Compared to personal brokers, online trading accounts offer smaller fees and more immediacy, making them
better for traders looking for more independence. However, keep in mind that online accounts also come without
professional guidance, making them a good place for beginners to lose money. Which of the online brokerages you
choose will depend on your specific needs and goals.
1. Deciding to Start Trading Online:
Make sure you have enough risk capital to invest. Risk capital is money you are free to invest. This
money isn't used in paying your living expenses, repaying your debts, or held in your retirement account. In
other words, this is money you could stand to lose (but obviously don't want to). In addition to your retirement
account, most financial professionals advise that you keep about six month's worth of wages in savings. This is
a good financial cushion to cover unforeseeable life events, like losing your job or becoming ill.[1] Any money
left over after this is your risk capital.
● Six month's worth salary is a minimum amount to keep in savings. For more
security, consider saving a year's worth or more.
Contribute to your 401(k) first: In addition to your emergency savings,
you'll want to contribute to your 401(k) before committing money to risk
capital. This is particularly true if your employer fully or partially matches
your contributions. Max out the matched contributions to your retirement
account each month before putting extra money into your trading account.
Consider offline options: Before signing up for online trading, think about
your goals and experience with trading. Would you rather have a professional
handle your money? Are you more willing to trust someone you can meet in
person? Offline brokers can offer you services and expertise that online
broker cannot, so take these options into consideration before committing.
Outside of online brokerages, you have two major options: money managers
and full-service brokers.
● Money managers are the most hands-off of all of the broker options. They
handle all of your trades, determine goals for your portfolio, and update you
on its growth and progress. However, they also charge large management fees
and require initial investments upwards of $100,000 or $250,000.
● Full-service brokers offer, as the name implies, the most amount of services.They sit down with you to determine your
financial goals based on your age, retirement plans, marital status, personality, and risk tolerance. They work with you
to make investment strategies and also will make direct trades if you call and ask them to. They can offer advice on
anything from taxes to estate planning. Accounts can be opened for as little as $1,000, but fees are generally higher
than those for online brokerages.
Determine your investment style: If you're still planning to invest online, you'll need to determine what type of trades
you'll be making. If you'll be doing more day trading, you'll need a platform that is responsive and has low per-trade fees.
Alternately, if you plan to make long-term investments, you can afford a platform with higher trading fees that offers more
services. Your decisions here will inform your choice of brokerage.
● Day trading is a stock trading strategy in which an investor buys and sells the same stock within the same day. Day
traders typically hope to take advantage of small price fluctuations and make quick returns.
2. Choosing a Trading Platform
Locate several brokers: Select trading platforms that are reliable and well regarded. You'll want to be satisfied that the
brokers are knowledgeable and responsive to your needs. Well-known platforms will be the most reliable. However, if you
choose to go with a more obscure brokerage, make sure the platform is registered with the Securities and Exchange
Commission (SEC) before committing your money.
● Some of the most reputable online brokers are: Fidelity, Scottrade,
E*Trade, OptionsHouse, TD Ameritrade, Charles Schwab, TradeStation,
and Interactive Brokers.
Make sure you meet minimum balance requirements: The first requirement you'll
have to check is whether or not you meet the broker's minimum account balance.
This is the smallest amount that you can deposit to start an account. For some of
these brokerages, if you lose money and your account balance drops below this
amount, you will still be charged additional fees for having too low a balance. Total
up your risk capital and compare this to the required minimum balance at each
brokerage.
● For reference, most online brokers require between $500 and $1000.[6]
However, there are also discount brokers with a $0 minimum and higher-
tier brokers with minimums of up to $25,000.
Look at their fee structures: Online brokers vary widely in fees charged. Some
charge monthly or annual service fees, some have high per-trade fees for securities,
and some charge more or less on mutual fund purchases, among many other types
and amounts of fees. Any broker will have this information readily available to
potential account holders. Visit their website and jot down their different fees and
how they might apply to you.
● Again, which fees are most relevant to you will depend on what type of
trading you plan to do. High trade commissions are a non-issue if you
plan to hold your securities for long periods of time. However, a day
trader would prefer one of the brokers with $1 trade commissions.
● Day trading has been proven in academic studies to be less profitable
that passive investing (buying and holding securities for longer periods
of time). This is partially due to losses sustained on bad trades, but also
to fees charged on each trade.
Determine the extent of services you need: Many larger, and more
expensive, online brokers have advanced research and analytical tools for your
use. If you plan to make quick, daily trades based on market information and
analytics, you may get your money's worth out of these tools. However, if you
plan to be a more passive investor, you may want to look for a more basic
service that charges you lower fees.
Select the broker that best meets your needs: Narrow down your broker
list first by choosing only those with low enough minimum balances. Next, look
at the services offered and choose those which offer the services you need.
Finally, look at the fee structures and determine which one will be cheapest for
you to use. Select that broker.
3. Setting Up Your Account:
Register with your chosen broker: Go to "create a new account" or "register." This will likely be in a
prominent position on the broker's main webpage. You'll likely have to enter your email address and create a
username to get started.
Provide documentation: During the application process, you will be asked to prove your identity and provide
financial information. You may also be required to scan or fax in certain documents. For most brokers, you will
need the following information and documents:
● Personal information, like your name, address, and
work information
● Your Social Security number or card
● Your W-9 form
● Up to two other forms of identification
● Other information or documents as required by your
broker.
Deposit money with the broker in order to start
trading: Compile your risk capital into one account and
deposit this money into your trading account. Many brokers
offer electronic fund transfers for your first deposit, while
other may require that you mail in an actual check.
Try out the tools and services offered by your broker: Take a tour of the
platform and familiarize yourself with major tools and pages. Work out how to see
your current positions in total and individually. Take advantage of every service you
think you might use; after all, you're paying for them anyway.
Do your research and make your first purchase: You may already have a
purchase in mind, but you should still do your research first to make sure this is a
sound investment. When you're ready, make your first order and wait for your broker
to fill it. Make sure to not put all of your eggs in one basket here; diversification is key
to building a successful portfolio.
● For more on diversification, see how to build a diversified portfolio.
MILESTONE - 3
Design a checklist for trading account setup and compliance.
Case Study: Setting Up a Trading
Account for a New Investor
Ms. Smith, a 30-year-old marketing professional, has
recently developed an interest in investing in the
stock market. She has some savings set aside and
wants to start trading, but she's not sure where to
begin. She approaches a financial advisor for
guidance on setting up a trading account.
Objectives
1. Open a trading account with a reputable brokerage 2. Open a trading account: Fill out the online
firm. application form, providing personal and financial
2. Fund the account with an initial deposit. information.
3. Set up a trading platform and tools.
4. Develop a basic understanding of trading strategies 3. Fund the account: Deposit funds into the
and risk management. trading account using a payment method accepted by
the brokerage firm.
Analysis
The financial advisor recommends the following 4. Set up trading platforms and tools:
steps: Download and install trading software or apps, and
set up alerts and notifications.
1. Choose a brokerage firm: Select a reputable
online brokerage firm that offers competitive fees, 5. Develop a trading strategy: Learn basic
user-friendly trading platforms, and reliable customer trading strategies, such as buying and selling stocks,
support. and risk management techniques.
Solution:
The financial advisor helps Ms. Smith:
1. Open a trading account with a reputable online brokerage firm.
2. Fund the account with an initial deposit of $1,000.
3. Set up a trading platform and tools, including a mobile app and
desktop software.
4. Provide guidance on basic trading strategies and risk management
techniques.
Results:
Ms. Smith successfully sets up her trading account and begins trading
with confidence. She starts with small trades and gradually increases
her investment as she becomes more comfortable with the trading
platform and strategies.
Conclusion:
Setting up a trading account requires careful consideration of several
factors, including choosing a reputable brokerage firm, funding the
account, and setting up trading platforms and tools. With the guidance
of a financial advisor, Ms. Smith is able to navigate the process
successfully and start trading with confidence.
CONCLUSION:
In conclusion, a trading account is a flexible and convenient investment facilitator that offers several
benefits to its users. It is essential to evaluate the fees and charges before opening a brading account to
avoid any surprises later. A trading account which allows traders to deposit and withdrawal fund to and
from their account, place orders, and monitor their trades from a single platform & trading sccount setup
is there to provide a centralized platform for executing and managing trades efficiently Trading Accounts
allow buyers to make purchases within an assigned credit limit and defer payment for a predetermined
period, typically 30 days. This arrangement enables buyers to manage their cash vely, enabling flow
effectively, them in Banking and Back Office Operations to receive goods and/for services without paying
for them upfront.
