A Guide to Trade Sharing with Demat Accounts
Trading online is one of the most intriguing ways of making money. We all have at least researched once about it, to see if we get the hang of it and then maybe even tried our luck at it. We hear success stories of people trading online and making huge profits, as well. If you want to try your luck at it, then you should stay with us for the next few minutes as we try to explain how you could make money off trading shares. Read all about Demat Account.
One of the ways of trading in shares is by making a Demat account. Demat is short for the dematerialization account that allows you to hold and trade shares in electronic form. We look at this in detail.
What is a Demat Account?
A Demat account was introduced in 1996. It is a repository that allows you to store and manage digital copies of your stocks to be shared. The aim is to provide a facilitating and easier way, full of convenience for users to trade in shares. It is also a safe way to secure your investments and shares.
Types of Demat Account:
- There are three types of Demat accounts:
- Regular Demat Account
- Repatriable Demat Account
- Non-repatriable Demat Account
A trading account is an account that will facilitate your transactions of the shares, bonds, government securities, mutual funds, etc that you have in your Demat account. It acts as a bridge between your bank account and Demat account.
How is a Demat Account different from a Trading Account?
The biggest difference between the two is in the manner you hold shares. In a Demat account, you hold the shares in electronic form, while in a trading account you get to buy and sell your securities in the stock market. Both of these have separate purposes but they are very closely related.
Another difference is in the fact that a trading account measures your capital market transactions over some time, while a Demat account measures them at a specific point in time.
How Does a Demat Account Work?
A Demat account is connected to two of your other accounts: bank and trading account. This connection is important otherwise your Demat account would be useless and it will only be used for holding shares, stocks, bonds, mutual funds, etc.
However, the right way is by connecting your three accounts and then transferring money from your bank account to a trading account which would help you to buy a particular share. The next step is when you put in a request to buy or sell, it is forwarded to the trading account for a stock. This will result in your Depository Participant (DP) forwarding it to the stock exchange, at the same time. For example, if you request is to buy a share then the stock exchange will look for a seller that is selling the same amount and send an order to clearance houses which will debit the same number of shares from the seller’s account to your Demat account.
Reasons for Opening a Demat Account:
There are a host of reasons why you should open a Demat account.
Before the Demat account was common, the task of physically sharing trades and maintaining them was a hassle. While it was also time taking, the problem with physically managing them was that it was never safe and the security risk was also high. However, the introduction of Demat accounts meant that people could safely keep these in check.
A Demat account is highly time-saving. It also makes trading a lot more easy, convenient, and saves so much time. You can buy, sell, and, transfer funds and securities in a matter of seconds.
Demat accounts help in monitoring holdings, quickly. You can monitor things from the comfort of your home, or while on the road, as well. This will help you stay in touch no matter where you are.
You can hold several investments at the same time, thanks to a Demat account. From mutual funds, equity shares, bonds, exchange-trades, all of these under one Demat account, which you can open even if you do not own any shares, at all.
This is one of the major perks of having a Demat account. Physical trading means that you have to pay additional costs such as stamp duty, handling charges, etc. However, you can say goodbye to all of those charges once you open a Demat account.
From dividends, interests, refunds, all of these reach your Demat account without any delay. Everything is updated automatically and this is a huge perk as you stay up to date with bonus issues, stock splits, or right shares.
Steps to Opening a Demat Account:
These are some steps to opening a Demat account:
- Select a broker or a firm. The key is in choosing a broker that will help you promptly, as time is paramount in trading.
- Compare brokerage rates and remember that some firms charge a processing fee, as well.
- Get in touch with a brokerage firm or the broker and begin the procedure of opening a Demat account.
- Most brokers will send a representative to your house or office, after confirming with you, with the account opening form and Know Your Client (KYC) form.
- You fill the form, submit the additional documents.
- You can also choose to skip all the paperwork and do this online, as per your convenience.
- Once the procedure is complete, you will be provided the details of your Demat account and you are ready to go.
There are many benefits of using a Demat account, and, it is one of the best ways of making sure you earn big. Research well before you make an account, and, best of luck!