There are some prerequisites that need to be done before buying your first stock, one of them is opening an investment account, now the question arises how to open an investment account?
Through this article, we will answer these questions and learn the step-by-step process of how to open a trading account and how to start a Demat account First, let’s learn the difference between a Demat account and a trading account.
A trading account cannot function without a Demat account, with the help of both these accounts one can learn how to open an investment account. Usually, both of these are opened together and are called a 2-in-1 account.
Demat Account: A Demat account or a dematerialised account holds shares, bonds, government securities and mutual funds in electronic form which makes online trading easier for users. A Demat Account holds all the investments made by an individual in shares, government securities, exchange-traded funds, bonds and mutual funds in one place by dematerialising them.
What is dematerialisation?
Dematerialisation is a process of converting the physical share certificates into electronic form, which makes its accessibility easier and convenient. An investor who wants to trade online needs to open a Demat with a Depository Participant (DP). The purpose is to eliminate the need for the investor to hold physical share certificates and facilitate a seamless tracking and monitoring of holdings.
Trading account: A trading account helps in buying and selling stocks in the stock market. It acts as a link between the Demat account and the bank account of the investor. With the help of the trading account an investor places an order for buying a share, after being processed by the stock exchange, the said number of shares are credited in the person’s Demat account.
For opening a Demat and trading account the following are the requirements:
- Aadhar card (for address proof)
- Cancelled cheque/Bank Statement/Passbook
- Passport size photos
- Pan card
- A savings account in a private or a government bank
Where to start a Trading account and Demat account?
There is no right or wrong when it comes to choosing your broker or a firm that has your investment account.
Brokerage firms act like mediators between investors and traders for buying and selling securities and stocks in return they charge small fees for every transaction made. Before the golden age of the internet, there were only physical brokers but now the internet has made trading easier and now trading is done online through websites and apps.
There are two types of brokers:
- Traditional Broker: Traditional brokers are brokers that charge brokerage fees on every transaction made, the brokerage fee is about 0.3%, if you spend Rs1,00,000 then you will be paying a fee of rs300. Other than stocks a traditional broker also provides advisory services and other facilities like research, asset management and retirement planning. The charges come because of the extra facilities that they provide. For a person who is new to the share market and has little knowledge about stocks a traditional broker can be beneficial as they provide proper guidance. Some of the leading firms where you can open your investment account are Bajaj Finance, Share-Khan, Icicidirect, Motilal Oswal etc.
- Discount Broker: Online brokerage accounts have gained popularity amongst the youth, these firms mostly don’t charge any transaction or brokerage fees and the investor needs to play a Demat AMC.
If you have the knowledge and experience to manage your own investment account then this is for you, through online brokerage accounts you can buy and sell stocks, securities and mutual funds on your own.
Online brokerage accounts can be opened at sites like Paytm Money, Zerodha, angel broking, grow etc.
Both of them have their own sets of advantages and disadvantages, which one you should choose depends upon the type of investor you are.
For an amateur investor who has just started or someone who wishes to explore the possibilities of the market, it is advised to choose a traditional broker as they provide advisory services which aid them in understanding the market and help them in making better investment decisions.
On the other hand, someone who is an expert or has trading experience should opt for Discount Broker and make the most of the low brokerage charges. It will help investors save a lot as compared to traditional brokers and eventually increase the overall profit.
HOW DOES TRADING TAKE PLACE?
Now that you have learned how to open a trading account and how to start a Demat account, the next step is to start with trading.
Once the account is created the user receives the credentials to login into the portal.
Money must be transferred from the trader’s bank account to his trading account. When stocks are bought, they are put to a Demat account, and the amount paid for them is deducted from the trading account. When shares are sold, the money is credited to the trading account and the Demat account is debited. We can say that the trading account acts as a link between the bank account and the dematerialised account.
Let’s wrap up
Through this blog, we learned how to open a trading account, how to start a Demat account and get started with trading.
We also learned that to invest in stocks you need a Demat account and a trade account which are opened with a brokerage firm.
There are two types of brokers, a traditional broker and a discount broker, depending on the type of investor you are, you can select your broker accordingly.