Mar 21, 2024 Value Broking 10 Mins 1.8K

One of the initial stages of trading involves the transfer of funds to your trading account. Just like everything else in the stock market, this also has a systematic way, and in this process, you can take guidance from your DP. But before you get into this process, understand that it is crucial and mandatory. Hence, do not be hesitant to comply with this process. 

You have several options for transferring the funds to your trading account, depending on your comfort level. You can use the NEFT/RTGS/IMPS facility, or you can even use a margin cheque and a demand draft.

Do not get overwhelmed by the words, since here you will get information regarding all the ways to transfer your funds mentioned here and how to transfer funds into your trading account. You will understand the ways in further detail. But before that, let’s discuss the trading account in-depth.

What is a Trading Account?

A trading account is an essential aspect of the stock market. It has a vital role to play in buying and selling funds, shares, debentures, and securities from the stock market. You cannot buy or sell your holdings unless you possess a trading account. All the trades that you will make in the share market while trading will happen from this trading account only. Placing buy and sell orders for the various types of security will take place through the trading account. You can also choose to open multiple trading accounts for yourself. Yet you should be very clear that you cannot open numerous accounts with a single broker. If you wish to have more than one trading account you can open them with different financial institutions providing the facility. 

You, or any other beginner in the field of the stock market, have the option to open a low-cost trading account, and some brokerage firms or banks may also allow you to open a free trading account under their facility. Once you open a trading account with your chosen broker, you can transfer the funds into your trading account and perform the buying and selling of securities through it. You also have the freedom to keep a tap on your buying and selling status through the online platform provided by your broker, i.e., their official website or their trading app. If you wish to open more than one trading account, you will have to pay the separate charges for all of them to the respective brokers.

How to Invest Using A Trading Account

As you may already understand the importance of a trading account and its role in trading and investment in the stock market, let’s discuss the aspect of investment using a trading account. The importance of a trading account is a well-known fact, but to invest in the stock market through a trading account, you first need to find a proper broker and open a trading account. Remember, there are account opening charges and account maintenance charges for trading accounts; hence, make sure to check the rate or percentage of those fees before choosing a broker suitable for your current trading budget. To open a trading account, you will have to submit a certain number of documents. Your broker may ask for documents like your PAN card, Aadhaar card, driving license, Identity proof, etc., to process the opening of your trading account.

You have the option of opening both an online and an offline trading account. You can choose either of them that you feel more comfortable with. Once you open a trading account for yourself, you will have the complete freedom to transfer funds to your trading account and invest in the stock market by buying and selling securities using your trading account.

Why Do You Need a Trading Account

When you enter the stock market to grow your wealth and gain profit, there are two major accounts that you must have to keep your stock market investment and trading afloat. Those are the trading account and the Demat account. The role of a trading account is to allow the investor to perform the transaction and act as a bridge between the demand and the saving account of the investor. Every transaction you make, whether it’s buying or selling common stock, debenture shares, or bonds, must go through your trading account. As the name suggests, it is for trading purposes.

Types of Trading Accounts

There are many types of trading accounts that investors or traders can choose from. Below mentioned types are some of them:

Equity and Derivative Trading Account

This account is opened with a recognized stock exchange like the Bombay Stock Exchange or the National Stock Exchange. The most immediate requirement for this account is to make a fund transfer to your trading account. Once you are through with this process, you will have the permit to trade in the future and options. So you can now invest and trade in the derivatives market. There are two ways to trade using the trading account. The first one is the offline route. The second one includes the online route. In the offline mode, you can call your broker or visit him physically at their office to place your trading order. 

In an online way, you can set your trading order through an online platform such as the Trading app or the official website of your broker. A lot of financial institutions which provide trading account facilities have well-developed online portals to perform online trading activities. This is a relatively new method gaining popularity with the increase in the use of internet services.

Commodity Trading Account

The investor needs to open this account with a recognized commodity broker. The National Commodity & Derivative Exchange (NCDEX) and the Multiple Commodity Exchange (MCX) are two of India’s most well-known and reputed commodity exchanges. Here as well, you need to transfer your funds into your commodity account and, after that, you will be allowed to trade in commodity futures. Although, as of now, there is no availability for options trading in commodities in India.

Full-service and Discount Trading Account

As the name suggests, you can guess that a full-service trading account provides more facilities than a discount trading account. However, it does charge more than the discount trading account. Investors should understand their priorities and financial goals before choosing either of these accounts. The full-service trading account is suitable for a full-time trader, and the discount trading account may be ideal for a beginner with a limited budget. However, all these decisions are entirely up to the investors.

Features & Benefits

The following are some of the features and the benefits of a trading account:

Liquidity

A trading account provides the facility of liquidity to investors. It makes it easier for the investor to place a buy or sell order on the stock market directly by asking their broker. 

Wealth Building

A trading account helps investors trade in the stock market, which ultimately means that if a trader invests and changes in the market correctly, they can grow their capital over a while. And the trading account plays an essential role in that aspect. 

Access to the Stock Market

A trading account allows the investor direct access to the stock market. Due to the increasing number of investors, many brokerage firms will also enable low-cost or even free trading account opening facilities for their investors. 

Easy to Access

A large chunk of investors in today’s time have an online trading account that is extremely easy to access through the online app and the website of the investor brokerage firm

These are only a handful of the advantages. There are still many more trading account benefits that an investor can access by opening a trading account.

Transferring Funds Via Payment Gateway

Transfer of funds using the Payment Gateway systems

This is a standard method offered by many brokers. The greatest benefit of making fund payments through these gateway systems is that they enable transactions via various means. With this method of transferring funds to your trading account, you can use a debit card for that purpose. You can also use your internet bank account to transfer your funds into your trading account. Most of the big and reputed banks like SBI, ICICI, HDFC, and Axis Bank provide an online payment gateway system to their customers.

However, ensure to keep some significant points very clearly in your mind regarding the payment gateway systems. The first one is that every time you move a fund into your trading account, your broker will charge a certain amount as a fee for the service. If you transfer funds on a regular basis, the total amount may even increase further. You also need to know that the regulatory body, the Securities and Exchange Board of India (SEBI) does not allow you to use a credit card to transfer the funds. The SEBI has very clear guidelines in this regard. Therefore, you can only use your debit card for transferring money from the bank account to your trading account.

How to Add Funds to a trading account Via NEFT / RTGS / IMPS

NEFT/RTGS/IMPS Method

The NEFT, which is the National Electronic Fund Transfer mechanism, allows you to transfer the funds to your trading account. It usually takes about 2 to 3 hours for fund transfer through the NEFT system. In addition, it does not have certain kinds of charges like transfer fees. Further, if our broker has an account in the same bank, the NEFT transfer will be instant. Hence, it will be a requirement to add your broker’s performance as a beneficiary, and this transfer will take place using the OTP and the password on the second level of authentication. This is an additional level of security layer to secure the transactions taking place.

The RTGS or Real-time Gross Settlement method of transferring funds to your trading account is similar to the NEFT, but it only allows you to transfer funds if the amount is greater than two lakhs. The transfer facility in both NEFT and RTGS is limited to 9 a.m. to 6 p.m., but with the IMPS method, you can transfer your funds at any time, including weekends, but unlike NEFT and RTGS, the IMPS does require transfer charges. After the payment gateway facility, the NEFT / RTGS / IMPS are the second most used method to carry out all kinds of transactions. The traders can use these systems to transfer the funds to a trading account needed to perform the trades.

Transfer Through Cheque / DD in Favor of the Broker

Margin Cheque and a DD

This method of transferring funds to your trading account is used if you have an offline trading account, and in this process of fund transfer, you will have to sign a cheque in favor of your broker and make sure the cheque is formatted correctly as if it gets rejected, you will have to pay the panel charges to your broker. This entire process will take two or three days to transfer funds into your trading account. If you have an online trading account, you will have to opt for either the payment gateway method or the NEFT/RTGS fund transfer method.

Frequently Asked Questions (FAQs)

A brokerage firm will allow you to open a Trading account. There are multiple brokerage firms in India, and you can compare them and choose one.

Yes, the investor can link their multiple trading accounts to a single Demat account. However, this facility may differ from one broker to another.

The primary and most prominent function of a trading account is to perform transactions in the stock market. An investor cannot buy or sell in the stock market if they do not have a trading account.

Yes, the investor can open a free trading account with a broker who provides that facility. There are many financial institutions that are providing free trading accounts to their customers.