We shall see everything about the Demat account in this post. If you do not know what is Demat account read our article on it. In this post, we shall address how to open a Demat account and all the terms involved in the Demat account.
If you are a beginner to the stock market and want to know everything about it, start reading from here.
Without further ado, let us get started.
How to open a Demat account?
Select the Depository Participant (DP) to open the Demat account. In India, banks, stockbrokers, and online investment platforms offer DP services.
There are two types of broker in Indian stock market.
1. Discount Broker: Discount Broker offers the cheapest, low-cost brokerage for buying or selling socks compared to a full-service broker. When you use a discount broker service you are essentially on your own and you don’t receive any stock recommendations from the broker.
2. Full-service Broker: This kind of brokers provide Research, trading and advisory facilities in stock, commodities, currencies, Mutual fund, IPOs, etc. The commission charged by the full service broker is higher compared to the Discount broker because the advisory makes up an important part of their cost.
It is advisable to go for a service provider whose services and features match your needs and requirements. If you are a beginner, it is always recommended to go for a full-service broker.
Visit your DP’s website fill up the account opening form and submit it with copies of the required documents and a passport-sized photograph.
Once you have duly filled the Demat account opening form, you will be asked to fulfill the Know Your Customer (KYC) norms. This would require you to submit scanned copies of KYC documents such as your identity proof, address proof, bank account statement, and income proof. It is a good idea to have all of the relevant documents by your side before applying since this can help you get through the process faster.
Now you will be asked by your DP to go through a process called ‘In-Person Verification’ (IPV). It’s carried out with the intention of verifying the authenticity of your documents. However, many depository participants now offer IPV services online through the use of a webcam or a smartphone. After this, a member of the DP’s staff may contact to check the details provided in the account opening form
Upon completion of IPV, you will be asked to sign an agreement with your DP. This agreement generally contains all the duties and rights of the depository participant and the investor. Once the application is processed, the DP may provide a Demat account number and a client ID. These details can be used to access the account online.
Key terms in Demat account
Although there are thousands of terminologies that a stock market investor/trader should know, however, they are a handful of them that are repeatedly used. The basic domain knowledge of these terms is really important if you want to enter and succeed in the share market.
In this post, we are going to present an elementary guide for beginners to help them understand the key terms in the Demat account.
1. 52 week high / low
52 week high is the highest price at which a stock has traded during the last 52 weeks (which also marks a year) and likewise 52 week low marks the lowest price at which the stock has traded during the last 52 weeks. The 52 week high and low gives a sense of the range within which the stock has traded during the year.
2. All-time high / low
This is similar to the 52 week high and low, with the only difference being the all-time high price is the highest price the stock has ever reached from the time it has been listed. Similarly, the all-time low price is the lowest price at which the stock has ever reached from the time it has been listed.
3. Square off
Square off is a term used to indicate that you intend to close an existing position. That means selling the shares that you are holding in your Demat account. This term is often used in trading.
OHLC stands for open, high, low, and close. Open is the price at which the stock opens for the day, high is the highest price the stock reaches during the day, low is the lowest price the stock touches during the day, and the close is the closing price of the stock.
5. Last traded price (LTP)
This gives us a sense of how much the stock is trading at the very moment.
6. Previous day close
This tells us the price at which the stock closed the previous day.
7. Limit order
You can opt for a Limit order when you are very particular about the price you want to pay for a stock. Let us say, the share price of ITC is Rs.262 but say you want to buy the stock at Rs.261. In such a situation where you are particular about the price you want to transact in, you can opt for a limit order price. If the price does not fall to Rs.261, then you will not get the shares. This is one of the drawbacks of a limit order.
Volume represents the total transactions (both buy and sell put together) for a particular stock on a particular day. For example, on 17th June 2014, the volume on ACC was 5,33,819 shares. That means a total of 5,33,819 shares exchanged hands during the day.
9. Product type
Whenever you transact in the share market you will have to choose one of the following product types.
1. Cash & Carry / Delivery (CNC)
Select Cash & Carry / Delivery (CNC) if your intention is to buy and hold the shares for multiple days/months/years then you need to ensure the shares reside in your Demat account. Selecting CNC is your way of communicating this to your broker.
2. Normal (NRML)
Normal order (NRML) gives you additional trading limits against the cash you have. The additional limit will depend on the stock holdings in your Demat account.
3. Margin & Intraday Square Off (MIS)
An MIS or ‘Intraday Order’ is an order type wherein the buying and selling of stocks happen on the same day, giving you the advantage of price fluctuations in the market during the day’s settlement cycle. The advantage is of higher exposure limits, where you pay a margin as low as 10% on the stock value to place the trades.
4. Cover Order (CO)
A Cover Order is an order type for intraday trades. A Cover Order lets you place trades with very high leverage of up to 80 times the available limits.
10. Percentage change
This indicates the percentage points the LTP is varying with respect to the previous day close.
Read: How do Chit Funds work?
11. Market order
You can also opt for a market order when you intend to buy at market available prices instead of a very specific price that you have in mind. So if you were to place a market order, as long as there are sellers available, your order will go through.
Let us say you want to buy Adani shares at Rs.262. Suppose the price goes up to Rs.265 coinciding with your market order placement, then you will get Adani at Rs.265. This means when you place a market order, you will never be sure of the price at which you would transact, and this could be quite a dangerous situation if you are an active trader.
12. Stop loss order
A stop-loss order protects you from an adverse movement in the market after initiating a position. Suppose you buy SBI at Rs.262 with an expectation that SBI will hit Rs.275 in the near future. But instead, what if the price of SBI starts going down?
Let us assume you don’t want to take a loss beyond Rs.255. This means the maximum loss you are willing to take on this trade is Rs.6. If the stock price drops down to Rs.255, the stop loss order gets active and hits the exchange and you will be out of the loss-making position. As long as the price is above 255 the stop loss order will be inactive.
A stop-loss order is a passive order. In order to activate it, we need to enter a trigger price. A trigger price, usually above the stop-loss price acts as a price threshold, and only after crossing this price the stop-loss order transition from a passive order to an active order.
13. Ask / Offer
If you want to buy a share, you obviously need to buy it from a seller. The seller will sell the shares at a price that he thinks is fair enough. The price that the sellers ask you is called the ‘Ask Price’.
If you want to sell a share, you obviously need to sell it to a buyer willing to buy it from you. The buyer will buy the shares at a price that he thinks is fair enough. The price that the buyer demands is called the ‘bid price’.
This is all you need you to know about a Demat account. Investing is a life long affair and one has to devise an efficient plan to save and invest throughout the working years.
If you are a new reader, start your journey here.
Thanks for reading. Stay safe.