How to Invest in Share Market | Day - 3

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What is Demat & Trading Account, Depository & Stock Broker?
Let's say a person Aryan had bought shares in IPO from XYZ company and now Aryan is willing to sell it via Stock Exchange NSE. At the same time Tejas is the person who is willing to buy those shares from Aryan. In this case Tejas also has to go through the same mediator i.e. NSE.

Now the point is how will Tejas pay money to Aryan for buying shares?. We will not go into  much detail but you just know that for the smooth operation you need to maintain a separate Trading Account where you will keep money to buy shares.


Once you buy the shares money will be deducted from your Trading Account. You can think that's the reason we maintain a separate Trading Account and link this Trading Account with Bank Account instead of transferring the money directly from your Bank Account for buying the shares.


Only one particular Bank Account will be linked to Trading Account so that with ease you can easily transfer money from your Bank Account to Trading Account and if you want to sell all the shares and pocket the money then after selling the shares money will be credited to your Trading Account and now you can transfer the money from your Trading Account to your own Bank Account.


So if you want to participate in the game with Rs. 100 only then simply transfer Rs. 100 from your Bank Account  to Trading Account. Now no matter how innocent you are in this game the maximum you can lose is Rs. 100 and the maximum you can make is unlimited. This game is never gonna touch your Bank Account directly.


If your Trading Account current balance is Rs 100 and you bought shares of Rs 40. Now your Trading Account balance will be Rs 60 and invested amount is Rs 40, let's say after 2 days share price rose high and your invested Rs 40 turns to 65 then your Trading Account balance will be still Rs 60 at the moment and Investment amount will be 65.


If you decide to sell your bought shares then you sell it and pocket the money Rs 65. Once you sold your shares Rs 65 will be credited to your Trading Account and hence your Trading Account balance will be now Rs(60+65=125).


Now the question is once you have bought the shares, where will you keep it?



In earlier days we used to get share certificate in the form of physical document that you could keep in your suitcase but as the stock market have evolved faster now we don't get the share certificate in physical document but in electronic from i:e De-Materialized form that you can't touch.

The Process of converting the physical form of document into electronic form is known as De-Materialization.

To keep the stocks which is now in De-Materialized form we should have a Demat Account

Demat is the short for De-Materialization.

As you know when you deposit money in a Bank Account, Bank is the organisation who actually keeps your money with them and provide security to your money against any outside misuse but at the same time Banks give you authority to use your money the way you want and the amount you want based on your account balance.

In the similar fashion there are organizations dedicated to stock market operation who keep your money safe in your Trading Account and there are also some other organizations who keep your shares safe in your Demat Account

NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited) are the organizations who provide services of Demat Account. These organizations are known as Depositories.

Sooner we will see who provides the services for the Trading Account.

Now Imagine the complex situation how many things you need to maintain such as Demat Account with Depository and Trading Account with some other organization and a Stock Exchange to find buyers/sellers such as NSE.  

Actually there is a mediator who makes these messy structure very smooth and that mediator is Stock Broker.

It is the Stock Broker who provides the service of Trading Account too. You just need to open an Account with a Stock Broker and in your behalf they will take care of the rest like how to open Demat Account with Depository and how to open Trading Account and how to interact with Stock Exchange to find  buyers/sellers.

If you want to participate in this game with Rs 1,000 simply transfer Rs 1,000 from your Bank Account to your Trading Account associated with and managed by your Stock Broker.

ZerodhaShareKhanUpStoxFyersKotak SecuritiesHDFC SecuritiesICICI Direct these are the organisations act as Stock Brokers.

Stock Broker provides you the console to manage each and everything related to your stock market operation. You can buy/sell shares, transfer money from Bank Account to Trading Account or vice versa with ease, see the price fluctuation of shares. They even provide you the tools to do research on stocks.

In short you need to have an account with a Stock Broker and they will make almost everything very easy in stock market operations for you.

Once you have an account with a Stock Broker you don't need to interact with Depository or Stock Exchange directly. You will interact with Stock Broker only and they will do the rest of things on your behalf.

Documents Required to open an account with Stock Brokers.
  1. Passport Size Photograph.
  2. Scanned Signature.
  3. Bank Statement/Salary Slip.
  4. Aadhar Card.
  5. Pan Card.
To Do:  Try exploring this website -  Zerodha>>
To Open Trading Account  With Zerodha click this link - Zerodha Account Opening >>


Terms:
    Trading Account.
    Demat Account.
    Depository.
    Stock Broker.
  
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Comments

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