How to Trade in a Demat account?

Paper-strewn floors and traders frantically monitoring the trading screens at a stock exchange is probably the first image that comes to our mind when we think about the word ‘market’. But with the advent of electronic trading, traders are no more burdened with physical, paper stock certificates to trade.

Demat accounts hold for them their security like the bank account holds their money. A demat account can hold a number of instruments such as, government bonds, Exchange-Traded Funds (ETFs), debt securities, and mutual funds.

Through a demat account first introduced in India in 1996 -- traders were able to hold securities in dematerialised or an electronic form. This made trading smooth and less cumbersome for the masses.

How to trade with a Demat account?

The first step towards opening and operating a demat account is looking for a Depository Participant (DP) with whom you can open a demat account. Choosing a good DP is an important process of operating an online trading account. A well-known and established DP is highly likely to provide essential data analytics services which help in making an informed trade decision.

Second you must link your demat account to your trading account. While a trading account is used to place buy or sell orders in the stock market, the demat account is used as a bank where shares bought are deposited in, and where shares sold are taken from.

Traders must also take care of linking the trading and demat account with their banking account. Several others are available like 2-in-1 accounts or 3-in-1 accounts. A 3-in-1 account links bank account, demat account and trading account and a 2-in-1 account allows money transfer and a link between the trading and demat account.

And finally you can place an order through your trading account. Your order will then be processed at the exchange and the securities will be debited from or credited to your demat account.

Charges associated with opening a Demat account

Maintaining a demat account involves costs such as annual maintenance fee, transaction fee or commission for each transaction carried out by the DP. Besides, if you wish to dematerialise your shares, a fee is charged for that too.

Other charges that you ought to pay includes the account opening fee. While some DPs charge an online opening fee,others don’t. Also, a transaction fee could be charged to the Demat account holder for every transaction completed by the DP or as a percentage of the total value of the transaction. Some also charge a flat fee per transaction.

Features and Benefits of an online trading account

Trading with a demat account has solved several problems. Online trading is therefore more efficient and easy to go about. Here are some of the benefits of a demat account.

  • Accessibility

    : As mentioned earlier, demat account allows traders to view and access all the shares electronically in their demat account. Earlier it was the physical certificates that were required to be carried. You can easily access the details of your portfolio from a single click of a button.
  • Transfer:

    Before the electronic system of trade ushered in, settlement of trade would take weeks. Demat accounts in the electronic era have increased the speed of settlements multifold. Online trading accounts have therefore reduced the cost of transfer and brought ease to the whole system.
  • Cost-effective:

    Demat account eliminated several additional charges such as stamp duty, handling charges and other costs involved in transferring securities when traders dealt with physical stock certificates. It is because of cost-effectiveness, the demat account holders have increased significantly over the years and led to more new investors investing in the markets.
  • Availing loans:

    If you have a demat account, you can avail a loan using your securities in your account as a collateral.
  • Corporate benefits:

    All the returns from your investment is deposited to a traders Demat account. If the company that you have invested in has announced dividends, it will automatically reflect in your account.
  • Speed E-Facility:

    Going by National Securities Depository Limited (NSDL), traders can send instruction slips electronically instead of having to submit physical slips to the DP. This cuts short the waiting time and makes the whole trading process seamless and quick.

Conclusion:

A demat account in the electronic trading age is a necessity. It has replaced the expensive physical certificate holding system and made trading more cost effective. After you begin by opening a demat account, you ought to link it with your trading account which allows you to make trade conveniently.

Open Demat Account at IIFL