Share market is a popular space for investors to invest in stocks and other securities and get attractive returns from it. Although the market is highly susceptible to fluctuations, the possibility of earning a much higher return than from any bank deposits have attracted thousands of people to the share market. In this market, you get to invest your savings in a varied range of securities through brokerage firms and institutions. However, for that, you need to have a trading and demat account firstly. Thus, before you start opting for stock investments, it is important to understand the concepts of demat and trading accounts and how these can help you in trading in stocks.
What is a demat account?
A demat account or Dematerialised account is like a deposit account for investors of the stock market. It is mandatory for you to open a demat account for investing in the stock market. It holds the stocks and shares that you presently own in the share market. Any new stock or securities that are bought gets stored in the demat account while stocks sold get withdrawn from the account. With the digitisation of services, most stockbrokers provide online demat accounts. This means that you can not only open your demat account online but also can access the account and view the existing shares and details online. Your broker may have a comprehensible mobile app through which you can access the account or you may access it via a laptop. Whatever be the mode, you must open a demat account through a genuine broker to make sure that you don’t lose hard-earned money to a fraud.
What is a trading account?
Trading account is the platform where investors can place orders for buying or selling shares and other such securities in the stock market. Once you open a demat account, you need to open a trading account to conduct sales in the share market. Your trading account will show details about the transactions that you made in the stock market. It will be linked with your bank account so that you can transfer funds front there to your trading account and vice versa. Unless you have a trading account, you cannot sell the stocks held by you in the market. Most brokers now provide online trading accounts. You can have a trading account without a demat account only if you want to trade in Futures and Options securities.
5 things you need to know before getting a demat and trading account
Investing in stock can be the medium to earn lucrative returns. However, before opening a demat trading account, there are certain things which you must know to trade successfully in the stock market. If you haphazardly start investing money through a trading account, you might end up running at a loss and even lose the capital that you invested. Below are some of the important aspects of trading accounts that you should consider while opening the account for stock trading.
Account application process
Although there are various firms who offer demat and trading accounts, mostly all of them follow a standard account application process. However, it is advisable to contact your broker and check their application procedure in detail. Most brokers offer online account applications. You would need to visit the website of your chosen brokerage firm, fill the application along with the KYC form and submit it. Then a representative will be sent to collect and verify the required documents. The commonly required documents include your identity proof, address proof, income details, etc. After you pay the applicable charges, the broker will open your demat account and trading account and give your unique demat account number.
Types of brokers available
There are two types of brokerage firms available. It can be a discount broker or a full-service broker. You must check which brokerage firm is offering which type of services and choose a suitable broker accordingly. If it is a discount broker, then you will be able to trade in stocks, Futures and Options through them. If you go for a full service broker, in addition to the above mentioned securities, you can also trade in personal finance instruments such as mutual funds, initial public offerings (IPO), etc. through your trading and demat account. A full-service broker will also offer you stock management and advisory services.
Fees and brokerage charges
There are a number of fees and charges involved in stock trading. You firstly need to know and compare the brokerage fees of different firms and institutions and choose a broker that offers the best services at a low fee. The standard fees include account opening fee, Annual Maintenance Charge(AMC), brokerage fee, etc. The service fee of the broker is varied and it depends on the kind of securities in which you invest. Some firms may offer a demat and trading account at zero charges while others may charge a fee for opening the account. For instance, you can open the lowest brokerage and trading account at a nominal charge of Rs. 200 with LKP securities.
You must know that brokerage firms provide a nomination facility to investors of the stock market. Under this facility, you can choose a nominee while opening the demat account and trading account which will be given all the investments you own, after your demise. You must inform your nominee about the nomination and make him aware of your financial goals so that he can carry forward with the investments accordingly after your death. Make sure you choose a trustworthy nominee whom you want to give all your money earned from the stocks.
Before choosing your broker, check the trading software or platform that they provide you for trading in stocks. A complicated software can create confusion and may result in the inability to trade successfully through it. It is recommended to go for a brokerage firm who offers varied trading platforms such as a web-based platform as well as a mobile app platform. Especially if you are interested in intraday trading, it will be important to keep a track frequently on the market fluctuations even when you are travelling. Thus, in such cases, it is ideal to trade through a broker that offers a mobile app trading platform so that you can access, view and trade through your demat trading account anytime and anywhere.
After going through all the considerations, you will be in a good position to choose the lowest brokerage and trading account that is suitable for investing your money as per your financial goals. Knowing all these above-mentioned aspects about demat and trading accounts will help you trade better through these accounts and increase the chances of earning profitable returns from the otherwise risky stock market.