Once you decide to invest in stock market you will approach a stock broker for opening a Demat and Trading account.
What is a trading account ?
Trading account is an account provided by a stock broker for share trading. Most stock brokers, if not all, provide an Internet or Online trading account for easier buying and selling of Stocks. Generally your stock broker after completing formal requirements like KYC and linking bank account details will give you a user id and password.
Using this user id and password you can login to transact in your preferred stocks.
For Intra-day (buying and selling same day) and F&O (Future and Options) trading you do not need a demat account, however if you want delivery of your shares e.g. buying today and selling in future days, you need a demat account to hold your Shares. This stock market course does not detail about Intra-day trading or F&O .
What is a demat account ?
As told before in Financial intermediaries of stock market, Demat account or de-materialized account is where you keep your delivered shares. These days you cannot keep shares in paper format and Demat accounts are provided by depositories like CDSL and NSDL to hold them in digital format. Most stock brokers will link your trading account with bank account as well as the Demat account seamlessly while opening your trading and de-mat account. Thus, stock brokers themselves are referred as depository participants.
Most stock brokers will require you to sign a Power of Attorney (POA) so that they can SELL stocks from your demat account, on your behalf at any Stock Exchange like NSE and BSE.
Normal process of Buying and Selling of Shares using online Trading account
- Most discount brokers, wants you to first transfer funds from your bank account to them using online trading account before buying shares of a company.
- Once fund is transferred, you can go ahead and order a quantity of share at your required price through the trading account.
- Once you BUY the stock for delivery (Please refer CNC vs MIS), that day is called the trading day (T day).
- The stock gets delivered into your Demat account in T plus 2 days.
- Mostly you can SELL the stock only after the stock is in your demat account. e.g. after T plus 2 days.
- Once you SELL any stock it gets out of your Demat account in T plus 1 days.
- While the money received on selling gets displayed in your trading account immediately, it takes T plus 2 days to get to your bank account.
Many discount brokers want you to manually request for transfer of funds to your bank account. SEBI has directed Stock Brokers to clear the funds automatically on quarterly or annual basis. These days many stock brokers ask your fund clearing requirement while registering you for a new trading account with them.
CDSL AND NSDL both provide you a separate online interface on their website or as an app to track your holding. After the Karvy demat scam it is always advisable to cross check that your trading account stock portfolio matches with your demat account holding.
Let us now check a jargon you must have heard so many times Sensex and Nifty.