Online share trading is garnering immense interest in India. The recent media reports show a significant rise in the number of new investors trading in share markets. Even though there is a slowdown in economic activities, the interest of people to invest and grow their wealth through share market trading is increasing. If you too want to get started with online trading, you will need to open a Demat Account and Trading Account. It is the first step to get started with online trading in the stock market.
Both Demat Account and Trading Account play a different role, but they are closely linked to each other. Demat Account is a repository for keeping the shares bought or dematerialized. Trading Account helps you trade online in the stock exchange.
Let us begin with the basics. The shares of companies are listed in the stock market, and their prices keep changing basis the rules of demand and supply. Investors try to make profits by buying and selling shares in the stock market. Now, you might imagine a share market to be a crowded floor, with price tickers moving on massive screens and investors gesticulating frantically amidst the fluctuating numbers. So, do you need to be there on the trading floor to be an investor in share market? The answer is fortunately or unfortunately NO. You can trade online at the comfort of your home, by having a Demat and a trading account.
When you open a Demat account, it means you have a storage space where you can keep the shares you buy online. The shares exist in digital format and are stored and exchanged electronically. At any point in time, you can check your Demat Account to see the shares that you are holding. In fact, it also stores financial assets such as mutual funds and bonds. So, Demat Account is nothing but a repository. It does not help you trade in the stock market.
To trade, that is, to buy and sell shares, you need a trading account. A trading account is a platform where you can see the live price of shares in the stock exchange and place an order to buy or sell the shares. With an online trading account, you can place an order to buy a share. Once the order gets executed, the shares get deposited into your Demat Account. Now, you can understand the role of Demat Account here. Similarly, you can sell a share lying in your Demat Account, by placing a sell order through your trading account. Isn’t the difference between them obvious now?
Since both of them play a crucial role in online trading, both are generally linked to each other. Your trading account is further connected to your bank account. You add money into your trading account to get started with trading online. Note that you can also transfer money from your trading account to your bank account.
Opening a Demat and Trading Account
Now that you know how Demat and Trading account works, you might want to open one. To open a Demat and Trading Account, you need to approach a broker. The account opening process is online and does not require any paperwork. You just need to provide your name, address, PAN Card details, and upload documents related to proof of identity and proof of address. Most of the brokers will give you the option to e-sign using Aadhaar linked mobile number. This will significantly reduce the paperwork and make the process swift and more comfortable. Once you are done with these steps, you can submit the application and wait for a confirmation from the broker. Soon, you will receive your login credentials to log in to your Demat and Trading Account. You can add money to your trading account and get started with trading online.