To be able to trade in the stock market, an investor must have all three accounts — trading account, demat account and bank account. Each serves its own unique purpose but they are interrelated and together they enable a trader to complete a trade.
Here we deconstruct the process of opening a demat and trading account:
Demat account
A demat account is the one that stores in an electronic form the financial securities that an investor buys. This account facilitates the digital storage of the financial securities.
The demat account can be created by following four simple steps as follows:
1. Holder of an account i.e., Beneficial Owner (BO) can open a demat account with a Depository Participant (DP).
2. A form has to be filled by the investor prior to the account creation. The investor would be required to provide all the necessary details along with copies of needed documents.
These documents include proof of address, identity, income, etc. Above all, a Permanent Account Number (PAN) card is mandatory for opening this account. After the verification of all these documents, the investor must proceed to the next step.
3. An in-person verification also takes place to cross-check the identity and validity of other documents that the investor had provided. Also, the investor would be handed a list of rules and regulations along with the details of the charges that the BO has to pay the DP.
4. Right after the entire verification and approval of all the documentation, the investor’s demat account becomes operational.
Trading account
Moving ahead, a trading account is an account that is essential for trading securities. It is also known as the investment account as the buying of financial products is done through this account.
Similar to the demat account, a trading account can also be created by following a few easy steps.
1. Investors must fill an account opening form and then submit all the required documents to verify identity and address. They may include a PAN card, Aadhaar card, passport and others.
2. The second step is to complete the verification process which can be done either through a representative from a brokerage firm or through the investor’s phone online.
3. Then, after a thorough verification, the investor’s trading account would be ready and they would get login credentials to access their account.
4. Finally, one must not forget to link this trading account with the demat account for a smooth experience of trading.
As soon as a customer opens these accounts, along with a bank account — one can buy and sell financial securities at the stock market.