If you want to invest in stock markets, there are a plethora of factors that you should be aware of. Making money in stock markets is not a gamble or a lottery, but a process of systematic and scientific investments.
Foremost, you should be aware of the fundamentals of stock markets. The first step for stock market investors is to open up a trading and Demat account. Your trading and Demat account will form the crux of your trades.
One crucial aspect is to know the difference between Demat Account and Trading Account. As a novice trader or investor, knowing this difference would ensure that you open the most suitable Demat and Trading accounts, and begin your journey of wealth creation plan.
A Demat account is also known as Dematerialized account. In other words, converting or dematerializing your physical shares in the electronic format is known as holding a Demat Account.
Why can’t I just hold my shares in the physical format? Why should I convert it in the electronic format?
How it works:
Importance of Demat Account:
Trading account:
History of Trading Account:
Importance:
Here is a look at the difference between both accounts.
Functions | Demat Account allows you to keep securities like shares in an electronic format | Trading Account helps you to engage in trading through this account. In other words, you can purchase or sell securities through your trading account. |
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Nature | A Demat Account is quite similar to a savings bank account, where you store securities in an electronic format. The number of shares sold or purchased gets reflected in your account, similar to the debit and credit functions of your savings account. | A Trading Account, on the other hand, is quite similar to your current bank account. By linking your Demat Account with your bank account, it allows you to trade in shares. |
Roles | Demat Account is simply an electronic repository of your securities. This account reflects your existing wealth in the form of securities in hand, or stock. | Trading Account enables you to trade in the securities, which will then be reflected back in your Demat Account. This account essentially represents a series of trading transactions like a flow |
Measurement of time | A Demat Account, being your stock in hand, is measured at a point of time. Usually, the stock is measured at the end of each financial year, or on March 31. | As a Trading Account shows a series of trading transactions, it is measured over a period of time. For instance, trading for a month, or a year, or a fortnight. |
Step 1: Contact any Depository Participant (DP), who is an agent of the depository. Their list is found on the websites of Central Depository Services (India) Ltd and National Securities Depository Ltd.
Step 2: Fill the account opening form. Provide the requisite documents pertaining to proof of address and identity.
Step 3: Now you will have to sign an agreement. This agreement will provide the details regarding your rights and duties as an investor/DP. Do not forget to get a copy of the agreement along with the schedule of related charges.
Step 4: Congratulations! Your account has been opened. You will now receive a Beneficial Owner Identification Number also known as Demat Account Number.
Opening a trading account can be explained with the help of these simple steps:
Step 1: Select a broker/firm of your choice by comparing the different service charges and brokerage rates.
Step 2: Inform the broker that you wish to open a trading account.
Step 3: Fill the account opening form. Here, you are required to provide the requisite documents, including KYC details, address and ID proof.
Step 4: Now the authorities will verify your application. The application verification process may take some time.
Step 5: You will now receive the details regarding your trading account.
Step 6: Congratulations! You are all set to begin your journey of trading in stock markets.
Thus, you need to have a Demat Account to hold your shares in an electronic format. And to trade in stock markets, you require a trading account. Both are distinctive but crucial aspects of the trading process. After opening Demat and Trading accounts, you must begin your trading journey with a thorough understanding of the market and their instruments. You must always remember to take expert counsel as investment in stocks is subject to high market risk.
To begin your stock market journey, you can take advantage of the many benefits IIFL’s Demat and Trading accounts have to offer. IIFL is your one-stop-solution to trading in everything from equities and mutual funds to commodities and currencies. What’s more, you get access to all the market segments 0f BSE, NSE, MCX and NCDEX. With an award- winning research team and world-class technological platforms, IIFL can help you reach new heights of trading.
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