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Do you know about the Demat and Trading Account?
A Demat account holds your shares while a trading account provides you with an interface for buying and selling shares.
A securities account is the combination of both Demat and a trading account. And to open both these accounts you go to a broker or a brokerage firm and that’s why a securities account is also known as a “brokerage account”
What is a Securities Account?
A securities account is an account that allows you to buy and sell different types of securities.
As you open your bank account with a bank in a similar way you open your brokerage account with a brokerage firm.
If someone wants he/she wants to open only demat or trading account according to the need as both Demat and trading accounts perform different functions in the online trading process but they make the entire trading process swift and convenient if they’re integrated.
The broker with which you open your brokerage or securities account provides you with the integrated Demat and trading account in your brokerage account so that you can trade with ease.
Why the name Securities account?
It is given this name because through this account you can trade too many different types of securities:
- Stocks
- Bonds
- Mutual funds
- ETF’s
- Derivative contracts
Well, the commodity isn’t security but you can also trade commodities by using a securities account. The answer to the question, “How can you trade commodities using a securities account?” lies in the new guidelines of SEBI.
Types of Securities account
There are 4 types of securities or brokerage accounts:
Based on services offered
When you want to open any of the following 2 brokerage accounts, You do not ask the question: “Which brokerage account do I want to open?” instead of that you ask: “Which broker do I need, a full-service broker or a discount broker?” As ultimately you answer the latter question, you end up choosing one of the following brokerage accounts.
1. Full-service brokerage account
If you want to open a full-service brokerage account you need to open your account with a full-service broker. You get all the facilities that the full-service broker provided like along with broking services, you get investment advisory, stock research facility and other such services. But they charge you a high fee for these many services.
2. Discount brokerage discount
Discount brokers open your discount brokerage account where they provide you only broking services and charge less fee, for the services offered, than full-service brokers.
Based on cash deposit requirements
The only question you should ask before choosing a cash or margin account is, “How experienced am I in the stock market?” As the traders who trade using a margin account are high risk-takers than the traders with a cash account. If you’ve tasted the market for a long-time then you can take the risky bet.
1. Cash account
It requires you to deposit cash before you start trading. You need to have capital in your trading account before you put an order in the system.
Let’s say you want to buy a share of a company that has a market price of Rs. 200, then you should have at least 200 rupees in your trading account.
The broker does not lend you money if you want more capital for trading.
2. Margin account
If you have a margin brokerage account you can borrow money from your broker if you have a shortage of funds. It doesn’t mean that if you do not have even a single rupee in your trading account and you’re gonna borrow money. It doesn’t work in this way.
You need to have some capital in your trading account and the broker gives you a specific margin or leverage on the amount which you’ve.
If you want to buy the shares of the same company which we’ve discussed above but now you have a margin account then if you have only 100 rupees in your trading account you could buy those shares by borrowing 100 rs. from your broker.
While borrowing money to make trades enhances your potential gains, it also adds to your risk. Because by using a margin account you could do short-selling of shares. And you should know how risky is this game of short-selling.
Securities account charges
As the securities account or brokerage account is a combined form of demat and trading account. So, the same charges which are for demat and trading account are also the charges for securities account, which are:
- Account opening charge
When you open a securities account with a broker, the broker collects a charge from you.
- Brokerage Fee
A broker takes a commission or fee for the services that it is providing you through securities account which involves broking services and other services in the case of full-service brokers.
- Demat AMC (Demat Annual Maintenance Charge)
Annual charges for the trading account are generally free but for the demat account, the broker levies a maintenance charge.
- Charge on Off-market transfer
A charge is levied when you transfer your shares from one brokerage account to another brokerage account or want to gift shares to someone without involving the stock exchange.
- Dematerialisation or Rematerialisation charges
The charges levied on converting a share from physical form to digital form (dematerialization) and converting shares in digital mode to physical share certificate (rematerialization).
Conclusion
A securities account, which is generally known as a brokerage account, is an account that allows you to buy and sell different types of securities. In the laymen’s language, it is the combined demat and trading account.
Either you open your brokerage account with a full-service broker or with a discount broker, if you’re opening it with a full-service broker then you would have a full-service brokerage account and if you wish to open it with a discount broker then you would have a discount brokerage account.
The main types of brokerage accounts are cash accounts and margin accounts. Both can be either discount or full-service brokerage accounts.
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