Stock broker is one of the most important financial intermediaries that helps you in buying and selling stocks. They hold a stock broking license and registered as a trading member with the stock exchanges. In simpler terms, a stock broker is your gateway to the stock exchange.
After selecting your stock broker, you need to open a “Trading Account” with them to let you buy or sell securities in the market. This means through your trading account you will interact with your broker for buying and selling stocks or other securities.
The broker after opening your trading account will give access to “Trading Terminal”. Through this trading terminal you can place your buy or sell order.
Ownership of a share can be proved by producing a share certificate in your name. These share certificates are kept in digital format with a depository.
A depository is a financial intermediary which offers the service of keeping your share certificates in digital format, also known as DEMAT. The place where share certificates of various market participants are kept is called the “DEMAT Account”. This means a DEMAT Account in your name with a depository will have all the share certificates in digital format.
The trading account and the DEMAT account must be interlinked.
When you buy shares of a company through your trading account, after completion of buying, the share certificate of the company will automatically reflect after 2 days from the date of purchase in the DEMAT Account linked to that specific trading account.
Also Read: How clearing and settlement takes place in the Stock Market
At the time of selling the stock, your DEMAT account will be debited for the number of shares that you sold by using your trading account.
In India, we have two depositories offering DEMAT account services. They are National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). After submission of documents, a DEMAT account with NSDL or CDSL will be opened by the broker on your behalf when you open a trading account with them. Now both demat and trading account opening is online. You can open these accounts online by submitting digital copy of your PAN and Aadhar card.
In addition to a trading and DEMAT account, you need to have a bank account in your name to transfer funds from bank account to trading account. Remember, you can transfer money from that bank account which is linked to the trading account. To transfer from another bank account, you first need to link it to the trading account.
Also Read: What is Intraday trading, and how it’s different from Swing trading
