With the increased popularity of online trading platforms and hassle-free approaches to stock market trading, retail investors have now turned to explore the possibilities of optimizing their investment activities. It has long been an argument whether it is possible—and sensible—to maintain multiple trading accounts. Before jumping to this conclusion, it is good to know the term ‘trading account,’ how it works, and the merits and demerits of having more than one account.
Trading Account Meaning
A trading account means an account that one keeps with a registered stockbroker or brokerage firm for buying and selling shares in the stock market. It serves as a platform where users buy and sell equities, derivatives, and commodities, among many other financial instruments, thus facilitating trades.
In simple terms, a trading account connects the investor with the stock exchange through a broker. From this point alone, orders are placed by the investor, trades are monitored, and the investor starts from the ground up. Normally, a trading account is linked to a demat account, where shares exist in electronic format, and a bank account to facilitate fund transfer.
Can You Have Multiple Trading Accounts?
Yes, an individual can legally open and maintain different trading accounts with different brokers. There is no limit on the number of trading accounts an individual may maintain as long as each account is associated with a different client ID provided by that respective brokerage. The same PAN can be used to hold many accounts; however, all their transactions are recorded separately according to different client codes on the brokerage’s side.
Pros of Having Multiple Trading Accounts
- Access to Varied Services and Features
Different brokers offer different platforms: some offer their research tools; others have service features that may not be included in others. An investor can pile up several accounts with different brokers that provide specialized services; for example, one broker has low brokerage charges, while another offers deeper research reports or a more approachable user interface for interacting with the trading app itself.
- Separation of investment strategies
Investment portfolios can be better maintained and managed in terms of profit, loss, and tax implications without mixing them by entering account information either for longer-term investment or for shorter-term trading.
- Avoiding Risks of Platform Downtime
Another active trading account ensures a continuum of trading activities if a broker’s trading app or platform has technical difficulties or downtime during market hours.
- Participation in Exclusive Offers
Some brokerage firms provide introductory benefits, like offering free trades for a limited time, giving access to premium reports, or discounting administrative fees. With more than one trading account, such promotional offers can be utilized by investors.
Cons of Having Multiple Trading Accounts
- More Administrative Work
Running numerous accounts requires watching over many different brokers, including orders, transfers of funds, and account statements. Consequently, not all transactions may occur or may not be reconciled on time, or portfolio reviews may become too lax.
- Maintenance Charges Increasing
It would be possible to incur an annual maintenance charge along with platform and transaction fees for each of the trading and demat accounts. Having these accounts while not using them would automatically lead to an unnecessary expense incurred.
- Complicated Tax Filing
Consolidation of profits, losses, and dividends across various accounts for the purposes of tax filing would be beneficial for making such a report more tedious and error-prone at the same time, if not monitored carefully before taxes are filed.
- Abysmal Management of Funds
Investment focus would get diluted and harm overall portfolio performance by making several accounts create an unplanned strategy of how capital is also divided across them.
Conclusion
It would be necessary to understand the meaning of a trading account and its working principle before deciding to open multiple accounts. Opening accounts has operational flexibility, a variety of services, and risk management benefits, but like everything, it has a cost in administrative, financial, and compliance challenges. It is indeed important to assess one’s personal investment strategies and operational capacity before maintaining more than one trading account, accessed through desktop platforms or a trading app.
