Many new investors think a Demat account is sufficient for online trading. Contrary to this belief, a Demat account is not the only one you need for online trading. You must apply for a trading account, also known as a brokerage account. You cannot trade securities online without a brokerage account in India. Let us discuss how to select the best brokerage account in India.
Understanding the Functions of a Trading Account
Before delving deeper, it is essential to understand the functions of a trading account. A trading or brokerage account is used to place sale or purchase orders. You can purchase or sell a wide range of securities via a brokerage account. You can trade stocks, derivatives, mutual funds, ETFs, and other financial securities with a brokerage account in India. It acts as a mediator between the investor and financial markets. You can trade securities available on different stock exchanges with a brokerage account. You don’t have to visit the stock exchange physically to trade securities. A brokerage account will help you with online trading via a media device.
People often confuse brokerage accounts with dematerialisation accounts. As discussed above, brokerage accounts are used to trade securities. On the other hand, Demat or dematerialisation accounts are used to hold digitised securities. Investors can only use Demat accounts for holdings. A brokerage account allows investors to browse securities and their prices. Similarly, they can view the current market prices before selling securities via a brokerage account. A brokerage account must be linked with the Demat account for seamless transfer of securities for electronic storage. Also, investors must rely on a trading platform to access their brokerage and Demat accounts. Not to forget, trading platforms also help with informed decision-making.
Choosing the Best Brokerage Account in India
Since many brokers offer investment account services, choosing one can be challenging. Here are some tips for selecting the best brokerage account in India:
Understand Your Investment Goals
It is essential to understand your financial goals before choosing a trading platform. Are you looking to trade shares of different companies? Are you interested in mutual funds and ETFs? Some investors might prefer long-term investments for building wealth. Since there are different types of trading accounts, financial goals help choose one. Equity, commodity, currency, institutional, options, online, and margin trading accounts are available for investors in India.
Choose the 2-in-1 Account Facility
You might know how to open a Demat account online. However, you must also link your dematerialisation account with the brokerage account. It is better to open both accounts with the same broker in India. New investors must choose the 2-in-1 facility where Demat and trading accounts are linked.
Analyse Your Risk Tolerance
Some trading accounts come with high leverage to control larger market positions. You can purchase more securities even with limited capital. The stockbroker will offer a loan or margin to acquire larger market positions. However, the risk will automatically increase when you control larger positions. Some new investors might not want to indulge in high-value trades. Such investors can choose margin brokerage accounts in India.
Compare the Account Charges
Investors must compare brokerage account charges of different providers to make the selection. Consider the maintenance charge, brokerage, margin interest rate (for margin trading), and commissions before choosing a stockbroker. Don’t forget to research hidden charges applied by some brokers.
Consider the Effectiveness of the Trading Platform
Stockbrokers offer trading platforms to access the trading account and browse securities. These trading platforms also extend research support and help with decision-making. Not to forget, trading platforms are excellent for portfolio tracking and analysis. Choose a stockbroker offering new-age trading apps or web-based portals.
Opening a trading account is a step in the right direction. You can trade different securities and build a diverse portfolio in India. Don’t forget to compare the brokerage account charges of different stockbrokers before choosing one. Choose a brokerage account and start your investment journey!