Updated: Apr 10, 2021
Welcome to another chapter on the basics of stock market. In this chapter, we are going to learn about the types of accounts that you need before starting trading. In case you are focusing on an investment chance in the share market, then one thing that you must think of is that opening a saving account, a trading account and a Demat account is necessary. As you all know that you cannot buy directly the shares of a company. For that, you need to open an account with the broker.
Now let’s talk about various accounts which you need before starting your career in the stock market. These include: -
Saving Account – Savings account is one of the most important accounts one should have. One must have a saving account which is also known as Bank Account in a bank. Most of the Indians have a bank account in some form or the other (Savings account, Current account). For starting the investment or trading, we will have to put the money in the savings account.
Demat Account or Dematerialized Account – Having a Demat account is the first move towards the investment or the trading. In the earlier days before the electronic format, holding the physical shares intricate risk. Your shares might get rip up, damage, and lost. It involved a lot of paperwork also.
Nowadays, it is used to hold shares in electronic format. The purpose is to hold shares that have been bought to make trading easy and fast. In India, depositories like NSDL and CDSL provide free Demat account service. Depository participants or stockbrokers like Zerodha, Sharekhan use these services. Once you have opened the Demat account, you need to tie-up it to your saving account.
Once our Demat account opens, you will be issued with a unique Demat Account Number. This will assist you to deal electronically with your stocks. Our shares will be debited or credited to the Demat account. There is no issue in the case of zero balance in our saving account. Just like this, one can have zero shares in their Demat account also.
So you can use a Demat account to hold various financial tools like shares, mutual funds, ETF, etc. It authorizes you to perform multiple activities like trading and investing at the click of your mouse.
Trading Account – It is used to buy or sell equity shares in a stock market. Once you have a Demat account and you want to sell or buy shares, you require a trading account. The trading account has a unique trading number that will be utilized to trade in shares. It will be open with a registered stock market broker who conducts trading on their platform. It acts as a link between Demat and saving account.
Firstly, the investor has to transfer the money from the saving account into the trading account. When an investor wants to buy shares, he places his order through a trading account. Then that transaction goes for processing in the exchange. If his order is executed, the purchased shares get credited into his Demat account and an equal amount gets deducted from his bank account.
In conclusion of this chapter, I would like to inform you that you need a Demat account to carry your shares in an electronic format, and to trade these stocks, you need a trading account. Money will be deposited in your saving account.