A Demat account allows investors to hold shares and other financial products in digital or electronic format. It enables investors to track the stocks’ performance and to buy/sell financial products during trading hours. An investor who plans to trade in shares and securities must have a Demat account and a trading account with a registered depository participant. Buying/Selling through a Demat account is a simple task and it is possible with a click of a button. Here are a few guiding steps on the procedure of buying and selling shares through the Demat account.
1. Pick your Depository Participant (DP):
An investor can approach a stockbroker to open a Demat account and buy/sell shares through it. Many stockbrokers offer an online Demat account & trading facility. However, an investor should research all specific features being offered by each stockbroker. Many brokers provide different features such as a free Demat and trading account, low Demat transaction charges, one Demat account for multiple investment products, and a secured trading platform with advanced technology. An investor can pick his best service provider after comparing all features.
2. PAN & KYC update & Documentation:
An investor is required to update the Know Your Customer (KYC) and PAN Card before opening a Demat account. Apart from KYC and PAN Card, an investor needs some more documents for account opening such as Passport/Driving Licence/Voter Id/Aadhar Card or last three months’ bank statement(any one of these is required as address proof), one passport size photograph of the applicant, and signature on white paper. An investor needs to submit one canceled cheque of an active bank account required for bank details. These are requisite documents for opening an online Demat account and a trading account.
Open A Demat Account & trading account:
Once an investor applies for a Demat and trading account, a stockbroker can open the account after necessary steps such as documents verification and approval from the depository. Some reputed stockbrokers open a Demat account in less than 15 minutes of documentation. After completing the account opening procedure, an investor receives a unique identification number (UIN), login id, and password. After the first login, an investor can set his trading id and password.
Transfer funds from Bank account:
An investor is required to link his bank account with his trading account so that he can transfer funds from the bank account to the trading account. Investors should maintain a separate bank account for trading purposes so that they get an idea about their total profit or loss from trading.
The stock market is unpredictable and subject to influence due to government policies, changes in interest rates, company results, or the global market. Investors should conduct good research before investing in the stock market. Stock Research is an indispensable part of the trading process for an investor. While researching, an investor can take the help of stock market apps, stock momentum charts, etc. Conducting good research does not guarantee a profit though it can reduce the loss.
Understand the Basics of the Market
It is imperative to understand the basics of the stock market before starting trading. An investor must know-
- How does the stock market function?
- What is his risk appetite?
- What is his objective to invest in the stock market, whether it is a long-term investment or short-term investment?
- Importance of diversification
An investor should be crystal clear about market functions & stock market terminology, risks associated, and objectives to invest in before trading.
After good research and the required learnings of the stock market, an investor can start trading. He must be familiar with the user interface of trading platforms. A Demat account provides a one-click facility to its investors. It is prudent to understand all the functionalities of trading platforms such as market order, limit order, cover order, etc.
It is important to understand the difference between the Demat account & trading account before buying and selling shares in the stock market.
A Demat account secures investors’ holdings in an electronic form. Demat account does not allow for transactions. It stores the shares and securities only. The depository participant charges to investors Demat annual maintenance charges (AMC) for maintaining their accounts.
A trading account is assumed as a bridge between a bank account and a Demat account. Investors use the trading account for placing the buying and selling orders for equities and other financial products.
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