A DEMAT account is an account opened at the depository of investment funds to trade on margin. An individual or company can open a DEMAT account. This type of account is generally for trading shares, stock options, warrants and futures contracts on the difference between the expected value of capital and its current value. A DEMAT account is one of the two accounts available to investors under the Future Derivatives Market. The other is a CFD (Contract for Difference) account. Most of us, who are involved in trading, have heard about CFDs, similar to DEMAT accounts. Demat accounts are often opened by investors who engage in short selling. They are also called “STP accounts”. This is because the DEMAT account is similar to the STP account that is used as an input for a stop loss order, which works as a way of protecting the investors’ capital.
Some of the factors that you should consider before starting your account:
Types of accounts – Most stock brokers offer two types of accounts: a Demat account and a current account. The difference between them is that they are used for different purposes. A regular cash account is a current demat account designed to receive dividends and interest payments after trading in shares has been finished. The stock account, also known as a trading account, is created to trade stocks.
How to open an account – The first step to opening a stock trading or Demat account is registering. You can register by visiting your chosen broker’s website and providing your details, including your name and address. Some brokers will require you to provide other information, which will be sent in an email or fax from the office. Some brokers are not listed on an exchange and offer investor protection through the Investor Protection Fund (IPF) membership.
Whether to form a nominee – Some brokers will allow you to open an account in your name. This is known as a “nominee” account, meaning your trading details will be the same as yours. The nominee system should only be used if the broker’s rates are competitive and there is no negative impact on your funds. If you have any doubts about the quality of the service, it may be better to use a brokerage firm that charges a commission for each trade executed.
Insider trading – In many countries, insider trading is legal and can be against the law. This explains why you should check for the Demat account of your preferred broker. You can ask the broker how it deals with insider trading and its regulatory policies.
Opening an account – In some countries, you can open a demat account without revealing your entire identity to the other party (broker). This is known as an “off-the-shelf (OTS)” account.
There are some questions you should ask the broker before opening a DEMAT account:
The first step to opening a stock brokerage account is to call your preferred broker. You must provide your name and contact number, including your email address. Some brokers will require you to provide other information, which will be sent in an email or fax from the office. Depending on your location, the process may take a few days or weeks.
Conclusion
The Introduction of the demat account has brought a lot of revolution in the market. This is because it has enabled the investors to conduct trades through electronic means, thus minimizing the costs and losses involved in carrying physical securities. The dematerialization of the guards also brings in a lot of transparency and efficiency in the transactions conducted. The 5paisa demat account is also also instrumental in solving problems created by physical securities, among others.
