The Bond Between Demat Account and Equity Trading

Demat Account

Dematerialized account, popularly known as Demat account or DP account, is required for holding securities. Functioning of a Demat account resembles that of a bank account. For instance, a savings bank account is meant for depositing and withdrawing money, and similarly, a demat account is used for withdrawing and depositing stocks, bonds, NSCs and debentures.

However, a company generally offers securities in physical as well as Dematerialized form, and you have the liberty to receive them in the form as preferred by you. In order to receive securities in demat mode, you need to specify the depository name as well as the depository participant (DP) that has been mentioned in the depository account in your demat account opening application.

For trading in the Indian share market, all you need is a demat account and the money to trade. There are many benefits of holding a demat account. Some of the benefits include the buying and selling of shares and stocks of any company on BSE and NSE, online investing in mutual funds, investment in Gold via gold etfs, Apply for IPO's (Initial Public Offer) online, online trading in Futures and Options, and investment in Liquid BeEs (Liquid ETF). Hence, it is advisable to hold securities in demat mode as physical mode of holding securities are susceptible to forgery, getting lost or stolen, among other risks.

Equity Trading

Equity is actually a financial instrument that is invoked by a company for inviting people to invest their funds in the firm in order to hold an interest in the company. In most of the cases, when a company faces shortage of funds for expanding its business, or for any other purpose for that matter, it generally issues equity shares to interested investors in the market. The equity shares are traded either on over-the-counter market or stock exchanges.

For information sake, stock market can be divided in two parts, the primary market and the secondary market. All the new issues are generally offered in the primary market while all the other offers made on a subsequent basis are done in the secondary market. The purchase and sale of such shares in the secondary market is known as equity trading.

Relation Between the Two

As mentioned earlier, all the investors and traders are required to hold demat and trading account for the purpose of trading, as mandated by SEBI that is the Indian market regulator. It is because just like an ordinary bank account helps in carrying out various money transactions online, an online demat account enables a person to purchase and sell stocks. Even the stock brokers, or share brokers, guide those investors who possess demat accounts.