Why Demat Account Is Required For Trading?

In the current digital era, stock trading is based on computers and the internet. Retail investors can access numerous opportunities available in the stock market from the comfort of their homes. Although the stock market is volatile, investors are taking the right steps with systematic risk management and broad diversification to gain significantly. Financial intermediaries called stockbrokers, who facilitate technology-based trading platforms. You need online demat and trading accounts with the SEBI-registered stockbroker to access these trading platforms.

You need to open a trading account, along with a demat account is mandatory for online trading. Demat accounts have made stock trading comfortable and fast. When you initiate buy or sell transactions using your demat and trading account, each step of your trade is monitor by the SEBI and central depositories (the NSDL and the CDSL) to save you from any fraudulent activity.

Thanks to demat accounts, the stock market is ever-evolving with screen-based trading. Demat account and trading account are two different accounts but work together.

Demat account:

A demat is an online account with a brokerage firm in the stock market. The account stores all the financial assets you own in the stock market, in a dematerialised form. It can be your equities, mutual funds, derivatives, commodities, different types of bonds, IPOs, and various others. It is a safe repository for your investments. You need to create a demat account to hold most of the securities you choose to invest in. It credited/debited with the buy/sell of securities.

Trading Account:

A trading account is use to place trade orders and complete the online transactions to complete the trade. It is link to your bank account and demat account.

What is the requirement of a demat account? 

  • The moment when the stock market started to function online in India no company was permitted to issue paper-based securities. Securities are necessarily issued in dematerialise form only, and existing securities with the investors have to be dematerialise as soon as possible. You can not trade old paper-based security. 
  • To deal with digital securities, a demat account is mandatory as it stores your dematerialised financial securities with utmost safety for further trading. 

Demat Account Functions and Benefits

Fast transfer of stocks and other financial securities 

A demat account takes a maximum of two days to transfer all the financial securities from one person to another or company to investors. Generally, a demat based trade gets completed within two days after the transaction date (T+2 days). 

Conversion and transmission of shares 

If you have securities in the physical form, a demat account is required to dematerialise it quickly. You may receive it as an heir or nominee, and may hold it as it is due to emotional connection, or it may be a lost one that you have found now. If you want to trade them, you need to convert them into electronic format.

To receive corporate benefits online 

Without additional steps, you can automatically receive all your corporate benefits in your demat account, like bonus shares, right shares, splits, etc., without additional steps.

No odd lot issue; invest even in a single share

You do not need a huge amount of funds to make a transaction in the stock market. Using your demat account, you can invest in even one share.

Hold all your investments in a single account

Most investors diversify their investment portfolios in different market segments to reduce the impacts of market fluctuations. Just a single demat account is require to store all the securities of your diversified portfolio. You need not separate demat accounts to hold your different securities.

Loan facility against your demat securities

To meet your urgent financial needs, you can apply for an easy loan against the securities you hold in your demat account. You need not bear a loss due to a hurried sale.

This way a demat account facilitates online stock trading. To fulfil the increasing demand for demat accounts, discount brokers came into existence. These are the stockbrokers offering free demat accounts and low priced demat and trading services. This way, a demat account facilitates online stock trading.

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