Everything you need to know about Demat Account and Trading Account
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Author Image LKP Securities Ltd.
Equity | June 18
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Everything you need to know about Demat Account and Trading Account

Money-making in the share market is not merely a game of luck but is a process of systematic and scientific investment. An investor should have knowledge about the fundamentals of the stock market and a habit of checking and studying the trends of the global market. Before one can start investing in the stock market, a Demat or a trading account must be opened.

Demat account and trading account form the core of all the trades taking place over the stock market. It is the first step of trading in stocks. Here’s all you need to know about a Demat and a trading account. 

Demat Account

A Demat account, also known as dematerialised account, holds shares and securities of the account holder in an electronic form. With Demat accounts, users can buy and sell shares easily during online trading. A Demat account can be used to hold any type of shares and securities in which the user makes investments in one place.

These shares and securities are:

  • Shares

  • Bonds

  • Stocks

  • Mutual funds

  • Exchange-traded funds

  • Government securities

  • IPO

  • E-Gold

Demat account works like any other bank account. The users can check their credits, debits, transaction history, balance, and they also get a place to manage their finances electronically. A Demat trading account can be opened at a zero balance. That means there is no lower limit that a user has to maintain in the account in order to open it or keep it in an active state.

What is dematerialisation?

The process that is used to convert physical shares certificates and bonds in electronic form is known as dematerialisation. It helps manage all the documents easily and allows access to them from anywhere in the world with the help of our electronic devices. The investor opens a Demat account with a Deposit Participant (DP).

Benefits of Demat Account

Here are the benefits of the Demat trading account:

  • The transaction can be made anytime and from anywhere, at the convenience of the trader.

  • It does not require any registration for transactions.

  • All the documents are stored in soft copies, so there is no risk of theft, forging, and delays.

  • It provides a single platform to hold debt and equity instruments.

  • No charges of stamp duty costs are involved with this account.

  • It can be used to sell and buy single shares, unlike previous methods where transactions used to happen only in lots.

  • The securities that the trader is holding in the account can be used as collateral to take a loan.

  • The investor can also freeze the Demat account if he is anticipating or experiencing any suspicious activities. However, the user cannot freeze the account if the balance is zero.

  • The account holder receives a unique 16-digit identification number to avoid any hacking. It also makes the processing of securities smooth and transparent.

Types of Demat Account

In India, there are three types of Demat accounts:

Regular Demat Account

Any person in India who wants to start trading can open a regular Demat account. Any depository participant (DP) in India can open this type of account. This is the most used account and many people earn profit while trading with it. One mentionable difference between regular and other types of Demat accounts is that with regular Demat accounts, users cannot make international fund transfers. 

Repatriable Demat Account

Non-resident Indians (NRIs) with a non-resident rupee account (NRE) are allowed to open repatriable Demat accounts. This account supports international funds payments.

Non-repatriable Demat Account

Non-residents Indians (NRIs) who hold a non-resident ordinary rupee (NRO) account are allowed to open a non-repatriable account. Like a regular Demat account, this account also does not support international funds transfers.

How to open a Demat Account?

The procedure of opening a Demat trading account online is very simple. Here are steps to open this account:

  • Find out the most suitable Depository Participant and open their official website.

  • Fill out the application form available on the website for a Demat account.

  • Along with the application form, submit the KYC documents and personal details. These are the documents that are usually required:

  • Identity card (Aadhar card, Voter’s ID card or other photo IDs)

  • PAN card

  • Address Proof

  • Bank Details

  • The customer official will act on verification processes to ensure legal and ethical trading. It removes all the malefactors so that genuine, honest investors don’t face any problems while trading.

  • After verification, the applicant will be approved and the Demat account will become active. The account holder will receive the Demat account number via email and mobile.

Trading Account

A trading account allows traders to buy and sell securities in a share market. Earlier, the buyers and sellers had to be present in the same room to buy and sell securities. The trading account replaced that system by introducing electronic trading that can be done using electronic devices. In the trading account, the user gets a unique trading ID, which can be used to make online transactions.

How Trading Account works

A trading account creates a link between the bank account and the Demat account of the investor. When a trader buys any security in the share market, he uses his trading account. The money with which he is buying that security gets deducted from his bank account and the security goes into his Demat account. Similar but the reverse process is followed in case the investor is selling the security.

You can open a free Demat & trading account that proves suitable and beneficial to both experienced and beginners. 

Benefits of Trading Account

Here are the benefits of the trading account:

  • The trading account allows users to access multiple exchanges available in India. Some of the leading exchanges in India that can be accessed with the trading account are National Stock Exchange (NSE), National Commodity and Derivatives Exchange (NCDEX), Bombay Stock Exchange (BSE) and Multi Commodity Exchange (MCX).

  • With the online trading platforms, investors receive genuine and updated news and other information about the market. The reports published over these platforms help the investors learn trading tactics to make better judgments.

  • Even if the app is closed on the trader’s device, he can still get timely alerts about the performance of his assets active in the share market. Trading account providers send alerts through emails and SMS to keep the trader aware of his investment.

  • With the trading accounts, it has become easy for the users to access the share market easily. They can use their electronic devices and operate the account anytime from anywhere. Fund transfer has also become easier with the introduction of these accounts and now there are very few chances of getting caught in the trap of malefactors.

Types of Trading Account

Here are the different types of trading accounts.

Equity Trading Account

Equity trading accounts help the investors to trade in stocks, options and futures. It does not allow stocks where delivery is involved because those are handled by the Demat account. That’s why investors keep both trading and Demat account.

Commodity Trading Account

Commodity trading is not too different from equity trading, but because they cover a large portion of the share market, some people prefer to make separate accounts for them.

Offline and online trading account

Online trading accounts are in fashion, but some people still prefer to trade with offline accounts. The offline account cannot be managed by any online means.

How to open a Trading Account?

The procedure of opening a trading account is as follows:

  • Find a broker whose conditions seem more favourable to you. Consider service rates, the time and documents required by the brokerage to open the account.

  • After choosing the broker, open their official website and find the online application form.

  • Complete the KYC and attach the required documents. Here is a list of the documents that might be required to complete the process:

  • Aadhar card (It is compulsory to link a trading account with the Aadhar card)

  • PAN card

  • Address Proof

  • Bank details

  • Passport size photographs

  • Next, the broking house will verify all the details and after verification, they will open your trading account.

  • The brokers provide a trading ID that will be used to link the Demat account and trading account.

Trading and Demat account hold a lot of difference, but there are also a few similarities between them. A Demat account is used to hold the securities that traders buy and sell in the share market and a trading account is used as a medium to make this happen.

LKP Securities provides the facility to open a free Demat & trading account. The experienced professionals of LKP help the users to trade effectively in the share market to earn maximum profit with minimal risk. The outstanding services of the brokerage are suitable for both beginners and experienced traders.

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