Stock exchanges have started to work through an electronic system for share trading since the mid-90s and all the trades in the stock markets take place electronically. To know more about this system and enjoy the benefits of it, you need to open a Demat and trading account. Online trading refers to buying or selling financial securities electronically using trading accounts and credit or debit it to or from your Demat account. The key role of the Demat account is to hold your financial securities in the Dematerialized form.
Demat Account Meaning
Demat account is the repository of financial securities. Dematerialization is the process of transforming physical shares into electronic or digital forms. Therefore, it’s not required for the person to be present at the stock exchange physically to place an order. Anyone can use a smartphone or a computer to log in to their Demat account, keep an eye on the market movement, and monitor your securities. To buy or sell any security, you need an online trading account along with a Demat account. One cannot trade online if they don’t hold any Demat & Trading Account. Let us understand the importance and functions of a Demat account defining its role in stock trading.
Role of Demat Account
1. Digital Storage:
A Demat Account allows investors to hold financial securities in Dematerialized or electronic format You can understand its function like how a bank account functions, where you hold your funds and keep a record of entries in a bank passbook. Similarly, Demat holds your financial securities in electronic form that are debited or credited when you trade online. You can keep multiple financial products like debt securities and equity, mutual funds, etc. in a Demat Account.
2. Secured Storage:
Earlier in the outcry system, investors used to keep the shares in the form of physical certificates. Demat account has removed the burden of keeping the share certificates because it holds the shares in electronic form. Thus, it saves you from the botheration of holding securities in paper form and stay worry-free about their storage and safety.
3. Easy Transfer:
As you know Demat account meaning and functionalities. It works online, it makes the change of ownership i.e. buying or selling of any security, an easy and smooth process. Whenever you want to transfer shares, just place an order using your trading account, it will be deducted/received in your Demat accounts accordingly. The other side is that it makes the transfer easy from one stock broker to another if you want to change your stockbroker.
4. Monitoring Tool:
As a Demat account allows you to hold multiple securities in a single account, you can keep tracking every security you own. It makes it easier to keep monitoring all your financial products in one place.
5. Odd Lots Facility:
Demat account has made it possible for investors to buy or sell even a single share in the share market. There was the issue of odd lots or single security with physical shares but with a Demat account and its facilities, it is smoother and faster to trade in the market now.
6. Flexibility in accessing the platform:
You can trade with your mobile device, from wherever you want. You can check the trading tools a stockbroker is providing you along with a Demat account.
That’s how a Demat account is playing an important role to make stock trading highly convenient for investors and the stock exchange as well.
The process of opening an account is very easy. You need to open a Demat and trading account with a registered depository participant (DP)/stockbroker. Most stockbrokers offer free opening of accounts. You can open your brokerage accounts without owning shares.
Register for a Demat account online using your PAN card and other KYC documents like ID proof, Aadhar number, income proof, digital sign and photo. You will be provided with your unique Demat account ID and Trading ID and login credentials that you need to conduct trading transactions.