Basic Concepts of Trading and Demat Accounts

If you want to invest in stock markets, there are a few fundamentals that you should be aware of. For trading in stock markets, there are two prerequisites: You should have a Demat Account and a Trading Account. Unless you understand the basic concepts of both the accounts, you will not be able to invest in stocks and securities.

What is a Demat Account?

A Demat account is an account where you hold your shares in the electronic format. It is also called Dematerialised account as the physical shares are converted here in the electronic format. Once you open an online Demat Account, you will be provided with a Demat Account number. You have to quote this number while conducting the sale or purchase of stocks. The functioning of this account is similar to that of a bank account, where you have the option to deposit and withdraw money. Here too, the securities are debited and credited as per your sale and purchase.

Read on to understand the fundamentals of the two accounts.

  • Zero balance account: You don’t need to compulsorily have shares to open a Demat Account. In fact, you can have zero balance in the account.
  • Opening a Demat Account: You cannot open a Demat Account directly with the Central Depository Services Ltd (CDSL). You have to approach an authorized Depository Participant (DP), who will open your account, and facilitate further transactions.
  • Multiple accounts: As there is no restriction on the number of Demat Accounts which can be opened by any investor, you can have multiple Demat Accounts.
  • Zero Account opening charges: As per SEBIs rules, no charges are levied for opening a Demat Account. You, however, are required to pay Annual Maintenance Charge (AMC).
  • Number of account holders: You can either open a single or joint Demat Account. One account can have a maximum of three people, with one main holder and two joint holders. You must, however, remember that once an account is opened, any modification of names is not allowed.

What is a Trading Account?

The second step for investing in stock markets is to open a trading account. You can trade electronically in the listed shares of a stock exchange through your Trading Account. This account allows you to purchase and sell securities through your Demat Account. A trading account is similar to a current bank account as it links your Demat and Bank Account. For example, if you have to sell shares, your trading account will withdraw it from your Demat Account, and the corresponding price received on the sale will be credited in your bank account.

  • Opening a trading account: You can open a trading account by registering with a firm or stock broking company. Once you open a trading account, you are assigned a unique trading ID to commence trading in stock markets.
  • Fees and charges: You are not required to pay any charges to open a trading account. It is only while trading that you are required to pay charges like GST, stamp duty and brokerage.
  • Allows trading on multiple stock markets: Once you open a trading account, you can trade in shares, derivatives, and futures in all stock markets, including National Stock Exchange (NSE), Bombay Stock Exchange (BSE), National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX).
  • T+1, T+2, and T+3 in Trading Accounts: T means the trading day, and T+1 is the next trading day, and so on.

Can One Have a Demat Account Without Opening a Trading Account?

You can have a Demat Account without a Trading Account if you just want to keep stocks in your account. It is only when you want to trade that opening a trading account becomes mandatory.

Can One Have a Trading Account Without a Demat Account?

If you want to trade only in futures, options and currency derivatives, then you don’t require a Demat Account.

Conclusion

If you want to trade in stock markets, then having both Trading Account and Demat Account is mandatory. You must always remember to select only a trusted financial partner offering all investment options through a single platform. Along with the facility to invest in options like equities, commodities, Mutual Funds, IPOs and currency services through a single online Demat Account, a trusted financial partner will offer you the industry’s best stock and scheme recommendations.

Open Demat Account at IIFL