Know The Basic Terms Related To Demat Account

By Author: Maithili Pawar
Total Articles: 23
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As defined in common parlance, the dematerialised account is a digital medium for the purchase and sale of shares and other financial instruments. Before the establishment of the Demat account, investors held securities in the form of physical certificates.

Technological developments, however, and the need for a more convenient trading system led to the 1996 implementation of Demat accounts. Demat accounts have now been made compulsory, and any investor only needs to trade through Demat accounts.

How to open a Demat account?

An investor must contact a DP, such as a broker, sub-broker, or bank, who are intermediaries between the investors and the depository, to open demat account online. A unique login ID and transaction password gets created after you register with either of the DPs and complete the verification process by sending your ID and address verification. This Demat account will also be connected to your bank account that you have given information of for any transactions that you wish to do.

Before you start with your Demat account, ...
... some of the common terms to be familiar with:

• Intraday trading: It is known as intraday trading whether you buy or sell shares on the same day before the trading session ends.
• Margin money: If you want to purchase more shares, you can use the broker's margin cash facility to buy more securities.
• Market order: If at the current market price, you want to buy or sell a security, then you must place a market order. For instance, XYZ Company's current market price is INR 120, and you want to purchase it at this price. For the desired number, you will place a market order, and your order will be carried out instantaneously.
• Limit order: If you want to purchase or sell a security at a particular price, then you put a limited order, and the order gets executed once the price is reached. For instance, you want to buy a company's shares for INR 150, and the current market price is INR 160. Your trade is conducted if the share price falls to INR 150.
• Stop-loss order: To minimise your losses, a stop-loss order is imposed if the price movement of the security is not according to your standards. You purchased a company's shares at INR 300, for instance, and expected the price to go up to INR 320. Market movements are unpredictable, however. You can place a stop-loss order of INR 295 to minimise your risk, and then if the price falls to INR 295, the trade gets executed, and your losses get limited to INR 5 per share.

There are several other terms for Demat account introduction, but to get started, these are few fundamental concepts.