Can I trade without demat account?
Trading on the stock markets means buying and selling shares. You cannot do that without a demat account. This is because shares today are available only in dematerialized, i.e. electronic form, which is the only way in which shares can 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 money is deposited 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 get a demat account from 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 firms providing demat service.
Why is a trading account needed?
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 account are, to enter into 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 along 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 also more or less the same, 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.
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.
Disclaimer: The contents herein mentioned are solely for informational purpose 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.