Trading account

A trading account is your door to the stock exchange.

You cannot walk into the exchange yourself. Only registered brokers can place orders there, so you open an account with a SEBI-registered stock broker, and the broker places your buy and sell orders on the exchange for you.

The trading account is where orders are placed and money obligations are worked out. The shares themselves sit in your demat account, and the money in your bank account. That is why you need all three.

Opening it (securities-market booklet): fill the account opening form and submit signed KYC documents. Precautions it lists:

• Sign against each exchange where you want to trade.
• Note all charges, fees and brokerage and keep a record.
• Choose your segments (cash, F&O, currency derivatives). Derivatives need an understanding of the products.
• Give specific authorisation for extra facilities such as a Running Account or a Power of Attorney, to avoid later disputes.
• Give your own email and mobile number, and take a copy of the form.

Using it: orders can be placed through the broker's website, mobile app, Call & Trade, a visit to the office, or an Authorised Person of the broker. The broker must keep evidence of your order (signed paper, phone recording, email, internet log, SMS or other verifiable record).

Your rights (Annexure II): a Unique Client Code (UCC), trades executed only in your UCC, best price, a contract note, details of charges, funds and securities on time, and statements.

Timelines: the contract note within 24 hours of the trade; Trade Verification data on the exchange website on T+1; running account settled at least once in 30 or 90 days as you choose; a statement of funds and securities as on 31st March every year.

Amounts are illustrative.

Irfan, 31, a pharmacist in Kanpur, opens a trading account online. On the form he signs against NSE and BSE, ticks only the cash segment because he does not yet understand derivatives, and declines the running account and PoA for now.

On Tuesday he buys 50 shares at Rs 1,240, a trade value of 50 × Rs 1,240 = Rs 62,000. That evening he receives an SMS and email from the exchange listing the trade, and a digitally signed electronic contract note from the broker the same day, well within 24 hours.

The contract note shows brokerage of Rs 20. He had noted Rs 20 as the agreed brokerage at account opening, so it matches. The next day he checks the trade on the exchange's Trade Verification page (data available on T+1) and it matches his order under his UCC.

If the contract note had shown a trade he never placed, the booklet's instruction is clear: take it up with the broker immediately.

Chapter 5 (Investment in Securities Market) lists the trading account as one of the three pre-requisites, with modes of placing orders and the contract note. The securities-market booklet adds account-opening precautions, record of client orders, running account, trade verification and Annexure II rights. Expect questions on the three accounts, the 24-hour contract note, and the 30/90-day running account settlement.

• A trading account does not hold shares. Securities sit in the demat account.
• The broker must be SEBI-registered and a member of a recognised stock exchange. Dabba trading outside the exchange is illegal.
• Contract note: within 24 hours. Electronic ones need your specific authorisation and are digitally signed.
• Running account: voluntary, revocable, settled at least once in 30 or 90 days as you opt.
• Trade verification data: T+1.
• Specific authorisation is needed for running account and PoA. Signing the account opening form alone is not enough.