What Is Cash Trading In The Stock Market?

Trading can be done with the help of two accounts - cash trading account and margin trading account. Cash trading requires that at the time of settlement, all transactions have to be paid for with the help of funds in the investors’ Demat account. Cash trading involves buying securities with the help of money instead of depending on margin or borrowed capital.Apart from a Demat account , one will also require an authorized broker who will place the investor’s trading requests at the stock exchange as well as buy and sell the stocks in the cash segment.

Cash trading involves buying and selling securities via one’s Demat account in a few simple steps. The investor first selects the stocks that he/she needs to buy. They then have to make sure that the funds required are present in entirety in the Demat account. Unlike margin trading accounts, margin or borrowed capital can’t be used to buy stocks. The full price of the stocks as per current bid price needs to be paid. Once the stocks are deposited in the investor’s account, they may choose to keep them for as long as they want.Once the investor is ready to sell the stocks, the sell request is placed via the broker. Once the broker processes the request, the selling price is deposited in the Demat account. It must be noted that at the time of buying and selling, in addition to the price of the stocks, an additional fee of brokerage and taxes for the transaction is kept aside in the Demat account.

• No Time Limit: An investor can hold on to the stocks for as long as they want. Only when the stocks reach the desired profit, the investor can choose to sell the stocks. So the chances of earning a more significant profit are more in cash trading as compared to other forms of trading.
• Disciplined Trading: Since one is required to pay the full amount of the stocks, it restrains a person from going above the limit and also controls the loss if the price goes down.
• Excellent choice for new investors: Cash trading is a hassle-free way of trading as it hardly requires investors to possess any skill, nor does it have any complications. The risk factor is also low in this kind of trading. Hence, it is an excellent choice for novice traders.

• The only drawback of cash trading is the high brokerage and taxes that have to be paid along with the full price of the stocks. The brokerage and taxes are ten times more than that in margin trading.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.