What is Trading? How to use Demat account?

What is Trading? How to use Demat account?

March 10, 2023 By admin

Trading is a word that is well known. The majority of us have traded in our daily lives, even if we may not even be aware of it. In essence, everything you purchase at a store is exchanging money for the items you desire.

You can learn how to trade the financial markets online at tradimo, but what is online trading exactly? You will comprehend how trading may be described and how internet trading operates after reading this text.

The basics of trading

Trading simply refers to exchanging one thing for another. Often, we interpret this to mean just making a purchase by trading products for cash.

The same idea applies when discussing trading in the financial markets. Consider someone who transacts in shares. In reality, they are purchasing stock (or a small portion) of a corporation. They make money by reselling those shares at a greater price if the value of those shares rises. Trading is what is happening here. You purchase something at one price and then resell it for another, ideally at a higher price, making a profit.

So why would the share price increase? The answer is straightforward: supply and demand determine how much something is worth by determining how much others are prepared to pay for it.

A rise in demand results in an increase in price

This may be explained using the straightforward, real-world example of purchasing food. Imagine you are in a market and a vendor has just ten apples remaining. The sole location where apples are sold is here. The proprietor of the market stall will probably sell you a few apples at a fair price if you are the only customer and you simply need a few.

Let’s assume fifteen individuals come into the market and they are all looking for apples. They are prepared to spend extra for them in order to guarantee that they will have them prior to the others. As a result, the owner of the market stall can raise the price because he is aware that there is a greater need than supply for apples.

Customers will quit purchasing apples if they reach a price point where they believe them to be excessively pricey. When the proprietor of the market stall realises that his apples are no longer selling because they are too costly, he will cease raising the price and it could decrease once again to a point where consumers would start to purchase the apples once more.

A rise in supply results in a drop in price

Imagine that an additional market vendor enters the marketplace at that moment with even more apples to sell. Apple supply has now greatly risen. It seems sense that the proprietor of the second market stall could try to draw people by offering apples at a lower cost than the proprietor of the first market stall. It also makes sense that people would desire to purchase at the cheaper cost.

When the initial stall owner notices this, he or she will probably lower their pricing. As a result, the price of apples has decreased due to the rapid rise in availability.

The “market price” is the price at which supply and demand are balanced; in other words, it is the price at which both the owner of the market stall and the clients agree on the price and the quantity of apples to be sold.

What is Demat Account?

A dematerialized account is another name for a demat account. A Demat account is primarily used to store shares and securities electronically. It aids you in online trading activities such as stock purchases, sales, and the conversion of actual stock into electronic form. A dematerialized account holds all of the shares, mutual funds, bonds, government securities, and other investments. Investors can even execute intraday transactions with it.

What is Dematerialization?

Dematerialization is the conversion of paper certificates into digital ones. Overall, it makes the papers reachable at your fingertips and available around-the-clock. Dematerialization’s key goals are to aid you with seamless tracking and monitoring while avoiding holding physical shares. It aids in the conversion of physical shares into digital form.

What Kinds of Demat Accounts Are There?

Online accounts that store shares, bonds, and other securities in a dematerialized or electronic form are referred to as demat accounts, sometimes known as dematerialized accounts. It assists investors in online trading activities such as stock purchases, sales, and the conversion of physical stock into electronic form. There are three distinct sorts of demat accounts for various investors, yet their purposes are all the same.

  • Regular Demat Account – for investors residing in India
  • Repatriable Demat Account – for NRIs where fund transfer abroad can happen. This account requires an NRE account associated with it.
  • Non-Repatriable Demat Account – for NRIs, under which funds cannot be transferred abroad. This account requires an NRO account associated with it.

Why do you require a Demat account?

Similar to how a bank maintains an individual’s funds, a demat account houses shares and other securities. It keeps securities in electronic or dematerialized form. When an investor wishes to deal in securities on a delivery basis, they need a demat account. A demat is not required if the investor only wishes to trade futures and options. Nevertheless, because a demat account is used for all trade transactions, having one is now required. All financial securities need to be kept in one location for monitoring and storage.

Also, compared to a tangible certificate of a share or financial instrument, this account is significantly safer. There is no chance that it will be misplaced or lost. Since this account is online, anybody may access it from anywhere. One can buy odd lots of shares using a demat account, which wasn’t feasible with physical certificates. Also, shareholders who own shares in demat format are qualified for dividends, right issues, and bonus issues.

What is the Procedure for Opening a Demat Account?

Here is the account opening process for a Demat account

  1. Then, choose the location where the demat account will be opened. Then, decide which DP you want to use to open the Demat account. This service is provided by several financial institutions and brokerages.
  2. Fill up the account opening form and submit it along with the copies of all the necessary documents and a passport size photo.
  3. Have original documents handy for verification.
  4. You will receive a copy of the terms and conditions agreement. Go through it.
  5. A member of DP will get in touch with you and verify the details you have submitted.
  6. You will receive a client ID and a Demat account number upon successful processing, which you may use to access the account online.
  7. You must pay some account starting fees, such as the transaction cost and the yearly maintenance fee (monthly basis). The cost varies from one Depository Participant to another. A percentage of the overall transaction value is what some DPs charge, while others charge a flat cost for each transaction. The conversion of shares from physical to electronic or vice versa is another service that DPs charge for.
  8. There is no limit on the minimum number of securities to keep your account active.

How to Close Demat Account?

You must complete the “Account Closing” form and turn it in to the Depository Participant’s (DP) office if you want to close your Demat account. DP might be an investment bank or a bank. The account closure process may take between 7 and 10 working days after the closure form has been submitted.