Introduction:
Share trading wasn’t always as easy as it is today. There was a time when investors needed to fill up physical forms and jostle with the crowd at the stock exchanges to buy shares. Not only this, they then had to stand in long queues to collect their share certificates. Their ordeals didn’t end there, as they had to preserve these share certificates and go through the same process again when they wished to sell their shares.
Fast forward to today, and you can simply use your Demat account to buy and sell shares from your home or office convenience. If you are new to the world of stock trading, you might not know what a Demat account is and how you can use it to trade in the share markets.
Start Investing with Free Expert Advice!
This article presents a complete guide on opening a Demat account and using it for share trading.
What is a Demat account?
Before we move into the deeper details, let’s discuss what is a Demat account. It is a short form for a Dematerialised account, which enables you to store the shares you purchase from the stock exchanges electronically. The concept of the Demat account first came into existence in India in 1996 and has been the most preferred mode among investors for storing shares since then.
As of today, a Demat account has been made mandatory for share trading by the Securities and Exchange Board of India (SEBI). Holding shares in a Demat account helps keep them safe and eliminates the hassles associated with storing physical share certificates.
How to trade in a Demat account?
Below is the step-by-step guide to trade shares through a Demat account:
Step 1 – Open your Demat account
Before starting share trading, you need to open your Demat account. In India, Demat accounts are managed by two depositories – the Central Depository Services Limited (CDSL) and the National Securities Depositories Limited (NSDL).
To open a Demat account, you must approach a Depository Participant (DP) or a stockbroker such as Motilal Oswal. This stockbroker will then approach one of the two depositories to open a Demat account on your behalf. Some brokers may ask you for a fee for opening your Demat account.
Step 2 – Link your Demat account to your trading account
Once your Demat account is opened, link it with a trading account. This can be a savings or current account. If you don’t have a trading account, you can open it with a bank at the earliest. Some stockbrokers allow you to open a 2-in-1 account that can act as a Demat-cum-trading account.
Step 3 – Add money from your trading account to your Demat account
Next, you need to wait for the activation of your Demat account. Usually, stockbrokers take 24 to 48 hours to activate Demat accounts. Once your Demat account is activated, you can add money from your trading account to your Demat account.
For this, you must log into your stockbroker’s trading platform using an ID-Password combination sent to you at the time of account opening.
Step 4 – Place buy and sell orders from your Demat account
Now, your Demat account is ready for share trading. You can add stocks to your watchlist and place buy and sell orders for particular quantities of preferred stocks. Once a buy order is executed, the shares will get transferred to your Demat account. You can sell these shares on the same trading day or any other trading day in the future.
The maximum quantity of shares you can purchase depends on their market price and the amount you have added to your Demat account. For example, if you have added Rs. 1 lakh to your Demat account and the market price of a share you want to buy is Rs. 150, you can buy a maximum of 666 shares.
To conclude
Share trading involves a fair bit of risk. Ensure to gain adequate market knowledge and conduct proper stock analysis before placing trade orders. Motilal Oswal allows you to open a free Demat account and trade in shares and mutual funds conveniently.
Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account