If you want to trade online then you need an online demat and trading account. Without the demat account you cannot trade online. The demat account is used to store the shares and the trading account is used for trading. In India the shares are held electronically in a demat account.
To open a demat account you have to approach the depository participant (DP) like a broker, bank or a financial institution. The depositories in India are CDSL and NSDL. The list of DPs is available at the websites of the two depositories. Once you select a DP you can do the opening demat account process. The process involves
- Approaching a DP
- The DP will issue an account opening form.
- You have to fill the form and submit it with your PAN number, passport-sized photograph and the other required documents. You also have to submit your physical shares.
- The DP will verify the form and the documents
- The DP will open the account and update it.
- The DP will give you the account number. It is also called the Beneficiary Owner Identification Number (BO ID).
- Once the physical shares are converted to the electronic form the physical shares are defaced
- The account is available for use in a few days.
Benefits of online trading
Once you open demat account your share are stored in the electronic form. You can trade online. The benefits of online trading are
- The shares are stored electronically and so there is no threat of theft
- Online trading leads to paperless work. You can easily buy or sell shares
- It leads to lower transaction cost
- The transactions can be done with speed
- You can use high-end tool available online for online trading
- You can access your account anytime anywhere if you have access to the internet
- You can trade using a single account
- You do not have to store the physical shares as the shares are held electronically
Operating a demat account
The demat account introduction has lead to the online broker service and discount brokers. When you want to buy shares you have to tell your broker and the broker credits the shares in your demat account. When you want to sell shares you have to give a delivery instruction note with all the details to the broker. The broker will debit the shares from your demat account and the amount will be credited to your account.