Trading account is opened at a bank or other financial institution and is usually administered by an investment dealer. While traditionally the most common financial instrument to be held in trading account are stocks, it can also hold cash, including in foreign nominal and other financial instruments such as bonds, options, commodities, futures and derivatives.

Trading involves a frequent buying and selling of any financial instrument with the goal to generate returns that would outperform buy and hold strategy that is a pretty common strategy in investing. Trading profits are commonly generated by buying at a low price and selling at a higher price after a short period of time. Trading profits can also be made by selling at a high price and buying at a lower price to cover the position. This is known as a ‘selling short’ strategy executed in a falling market.

Functions of a trading account
Private persons as well as businesses can open trading accounts and deposit a certain amount of money for executing trade transactions. The minimum amount of deposit is usually set by the financial institution and sometimes even the legal regulations of the state.

While trading accounts are usually considered for shorter term transactions than investment account at a brokerage, there is no specific regulation defining the border between them. The time period during which an open position is held in a trading account is based on a strategy executed by the trader. A position trader could hold open position from months to even several years. Swing traders usually hold their positions open for days to several weeks, while day and scalp traders do not hold overnight positions.

Before opening a trading account, it would be useful to get acquainted to different types of trading accounts and other available options. The easiest way to open a trading account is to visit an online brokerage website. There you can find all the information about the offered services including trading accounts. Two main types are cash or margin accounts. You can also click here to open trading account now!

Utilization of a trading account
While a cash account determines that you can place a trade using only the amount of funds that are in your account, a margin account, on the other hand, involves a line of credit offered by your broker and you can use it to enter more positions that exceed your actual cash balance. When using a margin there is an interest applied for positions held overnight. If interested in margin, the brokerage could offer you several levels of leverage depending on size of your account. For example, if you hold 10,000 USD, leverage of 2:1 would allow you to purchase securities with total value of 20,000 USD. Also, it must be pointed out that in the same manner as higher profits are reachable, you are also subjected to higher losses that can even surpass your initial investment.

Advantages & disadvantages of trading accounts
When discussing advantages of trading account it is worth mentioning that this type of account is relatively easy to open online, which means that you are not subject to geographical constraints of your location.

Advantages
There are a large number of online brokerage companies offering various types of trading accounts and it is up to you to find the most suitable one for your needs. In addition to being easy to set up and access over online if needed, all assets in trading account are held electronically, which means no physical transaction is taking place.

If used with caution, margin can give you huge advantage in terms of profit when executing trades from your trading account. In addition, many brokerages offer different tools to make sure you are making the correct investment decision, as well as help traders to avoid emotionally based trades. Trading account offers another benefit: the possibility to keep and trade variety of different financial instruments in the same account. Although, some traders chose to open multiple accounts and keep each class of financial instruments in separate accounts.

Disadvantages
Nevertheless, worth remembering is the fact, that since the trading account allows gaining higher returns than investing accounts, also the risk of losing is greater and may exceed your initial investment. Potential high profits are pretty attractive, but you should also remember about the risks.