How to Trade in a Demat Account?

How to Trade in a Demat Account?

With the popularity of online trading and availability to the financial markets, several Indian traders are making their way and stepping their foot into the world of trading.
In earlier times, people had to physically go towards the counter to start a trade. However, with the rise of the demat account in 1996, the entire trading system has been turned into an electronic system.
In today’s time, a trader only needs a trading account to get started, and due to this, the demat account has become an essential part of every trader’s life.

A Demat account also called a “Dematerialized account”, where financial securities like bonds, shares, government securities and others are stored in electronic format to facilitate easy and safe trade for all the users.

A trading account is generally called an investment account that keeps all the major financial instruments like securities and cash like any brokerage account.
To start trading online, a trader or investor has to register with a reliable stockbroking firm or a broker. Later on, they get a unique trading ID used to conduct transactions in an online trading account.

Before understanding the importance of a Demat account for trading, let us look at some of its most essential features:

1. In the earlier days, the traders had to be burdened with several physical and paper stock certificates to conduct trade. However, with the introduction of the Demat account in India in 1996, the problem of handling in physical format disappeared because the trading turned into electronic format.
2. The term “Demat” account stands for dematerialization. Now, through a demat account, a trader can easily hold all his securities in electronic or dematerialized format.
3. The securities held in a demat account not only keep them safe but also makes them more available rather than carrying paper certificates.
4. The demat account has to be linked with a bank account to start trading. It is similar to a bank account but here the securities are stored in a demat account electronically. A trader can also debit or credit or even a zero balance in their demat account.
Once an investor open a demat account and link it with their trading account, the trading becomes more available than ever.

Here are the steps needed to open a start trading with a demat account:

1. Find a depository participant or DP to open a demat account Note – An investor should find a reliable and reputable company that offers premium services at affordable pricing to open a demat account.
2. Link your trading account with a demat account. However, it can be in separate companies, but it is advised to keep both trading and demat accounts in one company.
3. A trader has to place an order through its account to start their trading. The broker will connect then connect the trader to the relevant exchange.
4. The order is then processed at the exchange.
Note – The exchange will check all the details related to the transaction and also relevant details of a trader’s demat account.
5. Once the order is processed, the shares or securities will be instantly credited or debited from its demat account.

The entire trading process of trading with a demat account becomes efficient and convenient. Apart from advantages, here are some benefits of trading with a demat account:

  • Accessibility
  • With demat accounts, the trading has shifted from tedious to quick process. Moreover, since all the securities are stored in electronic format and stored in one single place, an investor or trader can easily access their other essential details from any location and at any point in time.

  • Easy Transfer of Shares
  • The transfer of shares with the help of a demat account makes it easier and convenient for all the users. Earlier, the transfer process used to take weeks to settle a trade, but now demat accounts have made it quicker.

  • It Helps in Availing Loans
  • The best advantage of holding all the securities in a demat account is that it helps them avail a loan. Thus, the securities of an investor or trader can be used as collateral, and he can easily secure a loan with them.

  • What is Demat Account?
  • A Demat account also called a “Dematerialized account”, where financial securities like bonds, shares, government securities and others are stored in electronic format to facilitate easy and safe trade for all the users.

  • What is Trading Account?
  • A trading account is generally called an investment account that keeps all the major financial instruments like securities and cash like any brokerage account.
    To start trading online, a trader or investor has to register with a reliable stockbroking firm or a broker. Later on, they get a unique trading ID used to conduct transactions in an online trading account.

  • Is it easy to transfer shares through a demat account?
  • The transfer of shares with the help of a demat account makes it easier and convenient for all the users. Earlier, the transfer process used to take weeks to settle a trade, but now demat accounts have made it quicker.

  • What does the term “demat” stands for?
  • The term “Demat” account stands for dematerialization. Now, through a demat account, a trader can easily hold all his securities in electronic or dematerialized format.

  • What is the advantage of holding all the securities in a demat account?
  • The best advantage of holding all the securities in a demat account is that it helps them avail a loan. Thus, the securities of an investor or trader can be used as collateral, and he can easily secure a loan with them.

Final Thoughts

While earlier, physical certificates were the process to transfer shares. However, with the introduction of the Demat account, the process of transferring shares has become easier and secure for traders.