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What is a trading account in accounting?

Nowadays, with online trading being easily accessible, anyone who is willing to become a trader can do so. Once you open a trading account with a good broker, submit necessary documents and have what it takes. There are various online platforms for stock trading in India for both beginners and professionals. In this post our focus is on a trading account, so let’s take a look at it. 

Definition of TA

Trading Account definition from two main perspectives:  

Accounting Perspective

A TA can be defined as a statement that shows the result of buying and selling. To determine the gross profit and gross loss of a trader at the final accounts preparation stage. The TA provides details of the total purchase, sales and expenses that are related to buying and selling.

Investment and Trading Perspective

A TA can be defined as any investment account that contains cash, securities or any other holdings. It is also commonly referred to as the primary account of day traders which is used to trade securities. Day traders are those that buy and sell assets within a day during a trading session. Due to which their accounts are being regulated. Other assets that are held for the long-term are separated from those held in a trading account. Without a trading account, you cannot trade in the stock market.

Trading Account Basics

A TA is like any other brokerage account which can be used to hold cash, securities and other investments. Generally, a trading account can be differentiated from other investment accounts based on usage, the purpose of usage and the risk involved. What then is the usage of a trading account? Day trading is typically the usage of a trading account. Those that buy and sell securities within a day in a margin account are referred to as day traders. 

Some are classified as pattern day traders. Pattern day traders are those that either buy and sell stock or sell stock and close the short position that same day. In other words, those that trade for at least five days a week and close short positions that same day in that week. 

Brokerage firms allow people to open cash or margin accounts, but the margin for the trading accounts is selected by day traders. And for those that are considered to be pattern day traders special margin requirements are enforced on them by FINRA(Financial Industry Regulatory Authority). 

You will need to provide your personal information, contact details and other information based on your jurisdiction and brokerage requirement. You can register online for a trading account with a firm or stockbroker. Every trading account comes with a trading ID that is unique to the individual and can be used for transactions. 

Why You Need A TA

Apart from the fact that you cannot buy or sell shares in India and other countries without aTA. There are other benefits of having aTA which includes:

Customize Your Trading Experience

An online TA is empowered by technology that gives you the privilege of customizing your trading experience. You can customize your experience based on your requirements and needs. You can modify your orders, customize your watchlists and set notifications.

 Trade With Ease

A trading account makes it easy for you to trade from anywhere in the world at any time. Especially with the new and modern technology that most platforms offer to their users. You can even buy and sell shares at ease and track your investment from the comfort of your home using your smartphone.    

Seamless transactions

An online trading account can help you conduct seamless transactions. A trading account makes all your trading activities seamless from placing orders and funds transfer to monitoring your portfolio and taking deliveries.  

Trade Multiple Stock Exchange

With an online trading account, you can trade multiple stock exchanges which were not possible when scrips and shares were held physically. But now with technology, you can trade multiple stock exchanges from a single platform.

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Margin Requirements For Trading Accounts

The Federal Reserve Board outlined the base requirements of all margin investors which you can check out later. The pattern day trading accounts maintenance is higher in comparison to non-pattern trading accounts. 

Day traders are required to maintain a base equity level of 25% of securities values. Up to four times purchasing power is given to traders over the minimum requirement. A trader receives a margin call when he or she fails to meet these requirements. If the call is not covered within five days trading is restricted.

Bottom line 

In India, you will need a Demat and trading account to trade in the stock market. A trading account as you can see from the discussion above is an essential part of trad securities. 

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