If you want to invest or trade in the stock market, you are required to have a trading account as well as a demat account. There are a few differences between a demat account and a trading account. These two accounts are mandatory and both have their own uses which help you trade in stocks.
We have made it easier for you to understand how these two accounts works and how can you use them for trading. Here is a brief guide on demat and trading accounts.
You need a trading account if you want to trade in the stock market. Once a company goes public and is listed in the stock exchange, the shares of the company are made available for trading. A trading account is used for the transaction of buying and selling the shares.
You need to open a trading account with a broker or contact a firm and open an account with them. The account comes with a unique ID that you can use for trading. It is very important to choose a good broker as each broker offers a different set of services for the trading account.
A Demat account is an account, which simply holds all your financial certificates in the electronic form. From shares to bonds, these are held in the electronic form in a demat account. For e.g., if you buy 100 shares of an ABC company then these shares are held digitally in a demat account. If you wish to sell 50 shares of the 100 then they are deducted from the account.
Difference Between a Trading and Demat Account
1. A Trading account is used to do the transaction of buying and selling shares in the stock market while a demat account is used to hold or relieve these shares once bought or sold.
2. A trading account acts as a link between your bank account and your demat account. A demat account acts as a savings account and stores your shares.
How to open A Trading Account
- Choose a broker or a broking firm
- Check out their services and brokerage charges
- Fill out the account opening form
- Submit the required KYC documents
- Once the verification is done you will receive the account details
- After you get the account details, you can start trading
How to Open a Demat Account
- A demat account can only be opened with a depository participant from the 6 SEBI registered depositories
- Choose the DP with whom you want to open the account
- Fill out the account opening application form
- Submit the required documents as asked by the DP
- After the in-person verification, you will receive the account number or a client ID from the DP
- Once you have your ID, you can access your account
How to Trade Shares Using A Demat Account
To trade shares using a Demat Account you need to do the following:
- You need to link your trading account with your demat account
- Once you have linked the two accounts you need to place an order through a trading account
- You can place orders such as a limit order, buy order or an after-market order
- Once you place the order the exchange will do the following:
- Verify the details of your transaction
- Verify the market price
- Availability of the shares
- Details or your demat account in case it is a sell order
- Once the above processes are done, the shares will either be debited or credited from your account
How to Transfer Shares Using A Demat Account
You can transfer shares to a nominee. For this, you need to have a nominee registered to your account. You can register a nominee while applying for the account.
2. Between Depositories
If you have multiple demat accounts with different DPs, and then you can transfer your shares from one to another. For this, you have to fill a Delivery Instruction Slip Book. You have to submit this to your DP. If the central depositories are not the same, then you need to fill an INTER-Depository Instruction Slip. If they are same then you need to fill an INTRA-Depository Instruction Slip.
If you want to trade in the stock market, then it is necessary that you have all the required accounts and tools with you. It is advisable to have a good knowledge of the market volatility before getting into any trade.