Things you must know about trading account and Demat account
Before online trading, stockbrokers were responsible for buying and selling orders on behalf of their clients. But, thankfully, today with online trading investors may now buy and sell orders on their own, either online or via a phone call. The client’s instructions are directed automatically to the exchange through the person’s stockbroker.
For buying and selling stocks, it is essential to have a Demat and trading account. What is trading account? How it is different than Demat account and how to open an online trading account, these are a few things that one must know to trade in the stock market.
Continue reading to know it all.
What is a trading account?
A trading account enables an individual to buy and sell shares. It works as an interface between the investor’sbank and Demat account.
The shares you buy through your trading account are credited to your Demat account. The shares you sell are debited from the Demat account and sales proceeds are credited to the bank account.
Trading account is provided by a stockbroker. This account is linked to your bank account,in order to give the required liquid cash to buy/sell shares. Depending on your trading strategies you can have more than one account.
Benefits of trading account
The benefits of a trading account are listed below:
- A trader can set his own personal trading limits.
- Investors can buy and sell derivatives, ETFs, Forex, gold ETF and stocks using a trading account.
- Easy to set up and provides telephonic and online access.
- It reflects the ratio between costs of goods sold and gross profits.
- It also shows the relation between gross profit and sale. This assists to measure a trader’sprofitability position.
What is the difference between a trading account and a Demat account?
A trading account allows you to buy and sell shares in the stock market. Demat account, on the other hand, holds the certificates of your ETFs, mutual funds, government securities, bonds and shares.
For example, you have Rs. 500 in your wallet. You visit a store and ask the seller that you want a cold drink, you check the MRP, and finalize the purchase. Then, you take the cash out of your wallet to give it to the seller. In this case, the wallet works as the demat account, while you act as the trading account.
How to open an online trading account?
- First, choose a stock broker or a brokerage firm. Make sure that the broker is reliable and will process your orders in a timely way. Remember, time is really important in the share market.
- Compare their commission or brokerage rates. Every broker charges you a particular commission for processing your orders. Some charge percent wise and some charge flat fee.
- Some brokerage firms provide discounts depending on the amount of trades conducted. Take all these things into consideration before opening an account. However, keep in mind that it is not necessary to choose a broker with lowest fees. Good brokerage firms often charge more fees.
- Next, contact the broker or a brokerage firm to ask about the account procedure. Usually, they send an executive to your office or home with the account opening form and KYC (Know Your Client) form.
- Fill up these two forms. Submit along with photocopies of an address proof and an identity proof.
- After verification your application will be processed and you will get your trading account details.
- Now you can start trading in the stock market.
What are the documents required for a Demat account?
You need the following documents to open a demat account:
- PAN CARD
- Bank statement (With complete address, for the past 1-6 months depending on the broker)
- Address proof (Electricity/telephone bill, Voter ID card,Passport, Driving License)
- Cheque book (You will need a cancelled cheque)
- Passport size photographs
- A bank account
How to trade using demat account?
- Start by linking your trading and demat accounts. This way you won’t have to provide your demat account details for every transaction.
- Place an order using your online trading account. You can place an after-market order or a limit or buy order or a market order. If your broker lets you place orders through phone calls, then you will need to provide your trading account details.
- The exchange will process your order. It will verify the transaction details, the market price, the availability of the shares in the market etc. It will also check your demat account details that is linked to your trading account.
- Once the order is successfully processed, the shares will be either debited or deposited to your demat account.
So, get your online trading account today and start trading.