A demat account is a must if you want to trade in shares. It helps you to hold different securities like mutual funds, ETFs, bonds, shares, and other securities in an electronic form.
A demat account facilitates easy transfer of shares and also allows you to buy and sell shares conveniently. However, a demat account alone is not enough to trade in the stock market. You will also need a trading account through which you can transfer, sell, and buy stocks smoothly.
Both these accounts are essential for trading and although they function differently, they are related to each other closely. Let us now see how these accounts are used for trading:
The key difference between demat and trading account is that a demat account is used for holding the securities whereas a trading account reflects the transactions i.e. instances when you bought or sold stocks over a particular period.
Let us understand this better with an example:
- Suppose that you want to purchase 1000 shares from a company that is offering each share at Rs. 100. For that, you will have to place an order of 1000 shares first.
- Once your order is confirmed, the shares will be transferred to your demat account after T+2 days, where T is the day on which the transaction got executed. Similarly, if you want to sell 100 shares at Rs. 500 then your trading account will first check whether your demat account has enough balance of shares.
- If your demat account holds the required number of shares then 100 shares will be debited from your demat account to your trading account.
- After that, the buyer will transfer Rs. 50,000 from his bank account to your trading account and the shares will be transferred between your demat account simultaneously.
- You can withdraw the money from your trading account to your bank account whenever you want to or else you can buy new shares from the balance amount.
Therefore, the trading account acts as an intermediating link between your bank and demat accounts. You can contact a depository partner to create demat account. However, confirm whether the depository partner you choose is credible or not.
A safe way would be to go with a depository partner or stockbroker who is registered with CDSL or NSDL as you can complain to the grievance redressal system of SEBI if a broker does not follow the rules and regulations or if he misuses his rights.
Modern-day discount brokers provide a technology-based platform that enables you to invest and trade in various securities. Moreover, you can subscribe to their yearly plans as per the services and products that you require for trading.
Also, choose a DP who provides eKYC and online account opening form or else you will have to visit the branch office personally to complete all the necessary formalities. Opening a Demat and Trading account is now more convenient with the online processes. You just have to submit the soft copies of your PAN card, Proof of Address, Proof of Identity and Bank statement to open an account. The process takes roughly 5-10 minutes and can be completed without needing to step out of home.
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