Types of Trading Accounts 

Think of investing like grocery shopping, you have money in your bank account and a Demat account to store your shares but to buy or sell the shares online you need a shopping cart, this cart in the financial market is known as a trading account. It directly connects your bank account to the market so that you can invest in the market directly. 

But the trading account also has variations, if you want to buy a company’s share like Adani then you need to have an Equity Trading Account, if you want to buy commodities like oil or gold then you need to have a Commodity Trading Account, but what if you want to trade in dollar or euro, for this you need to have a Currency Trading account. So trading accounts have multiple types. In this blog we will learn about the types of trading accounts in the financial world so you can invest wisely according to your choice. 

Types of Trading Accounts

There are different types of trading accounts in the financial market, you can choose the one that helps you trade as per your choice and interest.  

1. Equity Trading Account

This is one of the most common and popular types of trading account, it allows you to trade (buy or sell) shares of various companies listed on the stock exchange like National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). When investors buy shares of a company like TATA or Reliance, where they own a small piece of that company. 

With this account, you can invest for both long term and short term time.

• Long Term Investment: Buy shares and hold them in your Demat account for months or years, and expect the investment to grow gradually over time.
• Short Term Trading: Buy and sell shares and try to earn profits on the same day from small price movements, this is also known as intraday trading. 

2. Commodity Trading Account

Investors in India also invest in various commodities like gold, silver or even crude oil. To invest in these types of commodities you need to have a Commodity Trading Account to buy and sell them. In commodity trading, you trade in raw materials and natural resources, instead of company shares. 

There are special types of exchanges for commodity trading like:

• MCX (Multi Commodity Exchange): It is a leading commodity exchange where traders can deal in metals such as gold, silver, and copper, as well as energy products like crude oil.
• NCDEX (National Commodity and Derivatives Exchange): It primarily caters to agricultural commodities, offering trading in products like wheat, cotton, and various spices. 

Investors need to open a separate commodity account with a registered commodity broker to trade in this market. 

3. Currency Trading Account

A Currency Trading Account, which is also known as a Forex account is used to trade one country’s currency against another. Here, the trader makes profit from the changes in their exchange rates. Currencies are always traded in pairs, for example, you can trade the US Dollar against the Indian Rupee (INR/USD). If you think the dollar will become stronger against the rupee, you buy the pair. If you think it will get weaker, you sell dollar. In India, you can trade currency pairs involving the Rupee, like USD/INR, EUR/INR, and JPY/INR, via a broker on the stock exchange. 

4. Derivatives Trading Account

In this account, the investors can trade in derivative instruments like Futures and Options (F&O). Derivatives are types of contracts whose value are derived from the underlying asset like stock, commodity or currency. 

• Futures: A futures contract is a standardized legal agreement that obligates the buyer to purchase and the seller to sell an underlying asset at a predetermined price on a specific future date. Both parties are required to complete the transaction as per the terms of the contract at the maturity date.
• Options: An options contract gives the buyer the right but not the obligation, to buy (a call option) or sell (a put option) an underlying asset at a specified price, known as the strike price on a certain expiration date. The option buyer can choose not to exercise the right if the trade is not profitable.

You can usually trade equity derivatives with your regular Equity Trading Account, but it needs to be activated separately. 

Read Also: Different Types of Trading in the Stock Market

How to Choose the Best Trading Account in India

Full-Service vs. Discount Brokers

• Full-Service Brokers: This type of broker behaves as your personal investment guide which offers a complete package of services from a platform to buy and sell, detailed research reports, stock tips, and even advisory call services are also available for any advice. Due to so many services, they charge a relatively higher brokerage or percentage of your transaction amount. This option is best suitable for investors just starting out that are looking for expert advice.
• Discount Brokers: In this account, the brokers provide you a low-cost platform to buy and sell investments on your own. Discount brokers do not provide personal advice or research reports, so investors need to do their own research. The main advantage of these brokers is they charge low cost, often a small, flat fee for each trade (like Rs.20 per order) and not depending upon the transaction amount. 

2-in-1 vs. 3-in-1 Accounts

• 3-in-1 Account: In this type of account all three accounts, your Savings Account, Demat Account, and Trading Account are in one place. These services are mainly offered by banks like ICICI, HDFC, or Axis and the biggest benefit is that moving money between your bank and trading account is done instantly. 
• 2-in-1 Account: This merges your Demat and Trading Account together, brokers like Zerodha, Angel One, and Groww offer this service. Here investors can link any of their existing bank accounts to it. Also moving money is easy through UPI or net banking, but it’s one extra step. 

Read Also: Types of Demat Accounts in India

Conclusion

Opting for a trading account may seem a complex task at first but after knowing them it is easy for you to choose the best suited trading account as per your financial goals. You just need to be clear about where you want to invest in (stocks, gold, or something else) and how much assistance is required. 

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