What is Demat and How To Use it for Online Trading?

A demat account enables you to hold shares and securities in an electronic format. You can consider it as a platform that you can use to trade in stocks seamlessly.

It also lets you consolidate securities like ETFs, mutual funds, debentures, bonds, and government securities in a single account.

The best way to open demat account is the one that provides a faster, convenient, and reliable process while enabling you to choose the right depository partner.

How can a Demat account be used for online trading?

How can a demat account be used for online trading
  • Few brokers handle physical shares these days as most of them prefer dealing in dematerialized i.e. electronic form of securities. Therefore, if you are interested in online trading then you will have to open a demat account first.
  • You would also require a trading account that acts as a connecting link between your bank account and demat account.
  • It is the trading account where the actual transaction i.e. buying, selling, or transfer of shares happens.
  • When you purchase shares, they first get credited to your trading account after the money gets transferred from your bank account to your trading account.
  • After that, the money gets transferred to the trading account of the seller and after a couple of days, the shares reflect in your demat account as well.
  • Similarly, when you sell the shares, they get debited from your demat account to your trading account.
  • Once the payment for the shares is done by the buyer, the shares get transferred in his trading account and the money will reflect in your trading account from where it ultimately gets withdrawn in your bank account. A similar process is followed while buying or selling other securities as well.
  • However, if you want to invest in futures, options, and currency trading then you will not need a demat account as they can be carried out with the help of a trading account.

Online transfer of shares

  • You can also use a demat account to transfer shares from one account to another online. For that, you will have to register on the website of CDSL and fill a form for transferring the shares.
  • After that, your depository partner will verify it and provide you with a password that you can use to transfer your shares to another demat account.
  • If you are not registered with CDSL then you will have to follow an offline process for the same.

Apart from these two accounts, you will also need the guidance and support of a depository partner to face minimum hurdles while opening a demat account. A depository partner is a broker who works with one of the depository bodies i.e. NSDL or CDSL.

You can choose a discount broker who offers a broad range of demat services at a nominal price. Some brokers also provide subscription packages that encapsulate all the charges like AMC, transaction costs, brokerage fees, etc.

Also, an ideal broker would be the one who provides a sophisticated trading platform that is integrated with all the necessary features. It should provide you with quick information about the real-time prices of stocks, bid-ask prices, and data for analyzing your investment portfolio.

An app that would help you to check the ups and downs of the share market, history of your transactions, etc. would also prove to be handy. Therefore, think of all these factors before opening a demat account.

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