Dematerialized account or Demat account, as known in common parlance, is a digital platform for buying and selling shares and other financial instruments. Prior to the introduction of Demat account, securities were held by investors in the form of physical certificates. However, technological advancements and the need for a more convenient method for trading led to the introduction of Demat accounts in 1996. Demat accounts have now been made mandatory and every investor needs to trade through Demat accounts only. Any shares held in the physical form need to be transferred to the demat account by 1st April 2019.
How to open a Demat account?
In an electronic trading platform, the shares are stored in the depository system through CDSL (Central Depositories Securities Limited) or NSDL (National Securities Depository Limited). In order to open a Demat account online, an investor needs to approach a depository participant (DP), such as a broking firm, sub-broker or a bank, who are intermediaries between the investors and the depository.
Once you register with any of the DPs and complete the verification process by submitting your ID and address proof, a unique login ID and transaction password are sent. This Demat account will also be linked to your bank account of which you have submitted details for any transactions one wishes to carry out.
Some of the common terms to be familiar with, before you get started with how to open a Demat account:
When you execute the purchase of securities the same is delivered in your account against the payment made by you. The settlement cycle in India is T+2 days, where T is the day of trade.
When you buy or sell the securities on the same day before the trading session ends, it is known as intraday trading.
When you want to buy more shares than you can use the facility of margin money from the broker and buy more securities.
When you wish to buy or sell a security at the current market price, then you have to place a market order. For example, the current market price of XYZ Company is Rs 120 and you wish to buy it at this price. You will place a market order for the desired quantity and your order will be executed instantaneously.
When you wish to buy or sell a security at a specific price, then you place a limit order and whenever the price is hit, the order will be executed. For example, you wish to buy the shares of a company at Rs 150 and the current market price is Rs 160. Whenever the share price falls to Rs 150, your trade will be executed.
Stop Loss Order
A stop-loss order is placed to minimize your losses if the price movement of the security is not as per your expectations. For example, you bought shares of a company at Rs 200 and anticipated the price to go up to Rs 220. However, market movements are unpredictable. In order to minimize your risk, you can put a stop-loss order of Rs 195 and so if the price falls down to Rs 195 then the trade would be executed and your losses would be limited to Rs 5 per share.
Cash and Carry (CNC)
Cash and carry is a delivery based trade. This type of order is to use for either taking delivery of shares in your Demat account or selling shares from your Demat account. If you place this type of order and buy shares, then the e-shares are delivered in your account and the entire amount is deducted from your account for the execution of the trade. The settlement process is completed on the T+2 trading day.
Margin Intraday Square-off (MIS)
This type of trade order is used for intraday trading, which means that whatever position one takes, it will be squared off(closed) on the same trading day either manually or forcefully by the broker at the end of the trade. The advantage of MIS trading is that it allows you to buy larger quantities of shares by paying just the margin money and not the entire capital amount. This type of order is used for both shares and F&O trades.
There are many other terms associated with a Demat account, but these are few basic concepts to get started.
Pay only ₹20 per order for Intraday, F&O, Currencies, and Commodities.