Can I Trade without Demat Account?

You cannot trade in the stock markets without a Demat Account. This is because shares today are available only in dematerialized, i.e. electronic form, which is the only way shares can now be traded. So, every time you buy or sell a share, it is reflected in your Demat Account.

What exactly is a Demat Account?

A Demat Account is much like your bank account, except that it holds your shares instead of money. Every time you buy shares, they are credited to your Demat Account, just like depositing money in a savings account. Similarly, each time you sell shares, they are debited from your account, just like funds are debited when you issue a cheque or make an online payment.

You can open a Demat Account with a depository participant, or DP, which could be your bank, stockbroker or a non-banking financial company (NBFC). DPs are representative of the two central depositories in India, the NSDL or CDSL, which serve as the link between the customer and the brokerage firm providing the Demat service.

Additional Read: Features and benefits of a Demat Account

Why do you need a Trading Account?

It’s not enough to have a Demat Account for trading in shares. You also need a Trading Account. The Demat Account merely holds your shares, but trades are executed through the Trading Account. As such, the Trading Account is just as indispensable as Demat Accounts are for stock trading. Only members of stock exchanges like the Bombay Stock Exchange and National Stock Exchange are allowed to open a Trading Account for investors to trade on the exchange.

If you want to buy and sell shares, you will have to do it through a broker, who will levy brokerage fees for allowing you to do so. You also have the option to open your Demat Account with stock-trading subsidiaries of big banks. Such banks and stock broking firms offer three-in-one accounts that allow you to combine banking services with the existing Trading and Demat services.

Most share-trading today takes place online, making it easier for retail investors to participate in the stock market. The seamless interaction between trading, funds transfer and dematerialization of securities makes the process convenient and hassle-free.

Stockbrokers too offer Demat and Trading Accounts. Irrespective of whether you select a bank or a brokerage firm, you have to deposit a certain sum in your Trading Account to pay for any transactions. The services provided by both entities are similar, with the main difference being in terms of the charges levied, the quality of services provided and the type of brokerage you opt for, between full-service and discount brokers. 

Additional Read: Documents Required To Open A Demat Account

Conclusion

To sum up, there’s no way you can trade on the stock market without a Demat Account. If you are interested in buying and selling shares and making the most of the Indian growth story, you need to get a Demat Account, as well as a Trading Account.

FAQs:

    1.  Can I buy shares without Demat Account?

No, you cannot trade in the stock market without a Demat Account. This is because all shares today are stored in the dematerialized format, which are reflected in your Demat Account. You will also need a Trading Account.

    2.  Is a Demat Account necessary?

Yes, a Demat Account is mandatory to trade securities in the stock market.

    3.  How can I invest without a Demat Account?

If you want exposure to the stock market without opening a Demat Account, going the mutual fund route is ideal. You can invest in mutual funds via an AMC office or website, independent portals, a registered mutual fund advisor, transfer agents or even through your bank.

    4.  Can trading be done without Demat Account?

Theoretically, it is possible to engage in intraday trading with just a Trading Account. When you do intraday trading, your trades are usually squared-off at the end of the day, so there is no need for their transfer. However, practically speaking, you need a Demat Account even for trading. Brokers and brokerage firms do not allow you to trade without a Demat Account.

    5.  What happens if I don't use a Demat Account?

Without a Demat Account, you will be unable to trade securities, i.e. buy and sell shares or other instruments. With just a Trading Account, you will only be able to invest in IPOs. 

Disclaimer: The contents herein mentioned are solely for informational purposes and shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.