What is Demat Account and how to use Terminal for trading

I am going to brief you about basic terms like what is Demat account, What is depository, how to place a buy sell on a terminal. What are different types of orders, what if you want to hold your position or want automatic exit in intraday and what is leverage and margin.

Well, the first step, talking in India you need a demat account. Now what is that: it’s an account that holds all the shares that you purchase in electronic or dematerialized form. Basically, a demat account is to your shares what a bank account is to your money. Like the bank account, a demat account holds the certificates of your financial instruments like shares, bonds, government securities, mutual funds and exchange traded funds (ETFs).

Now with that definition, let me elaborate you need a demat account only if you are willing to deal in Shares that too taking the delivery or holding the shares for T+1 day. If you want to invest in other than stock market you need a demat. BUT if you are planning only intraday or day trading; you don’t need a demat account. YOU NEED ONLY TRADING ACCOUNT.

Role of Demat account: 

NOW WHAT IS DEPOSITORY & IT’S FUNCTIONS:

 
A depository is similar to a bank. It holds shares, which belong to investors, in electronic form. The investor has to open an account with the depository, through a Depository Participant (Broker). The broker is an intermediary between the depository and the investor. In India, there are two depositories, National Securities Depository and Central Depository Services. A number of banks (HDFC Bank, ICICI Bank, SBI, and so on), brokers (Zerodha, India Infoline, Motilal Oswal and Indiabulls) and institutions function as DPs.

How to open a demat account?

Choose a broker on parameters: brokerage charges, annual charges and leverage provided. Fill up a form; submit documents like PAN CARD, CANCEL CHEQUE, ID PROOF, and INCOME PROOF (BANK STATEMENT OR ITR) AND INVESTMENT OR MARGIN CHEQUE.

NOW WHAT IS MARGIN AND LEVERAGE?

Margin is your investment amount that you are investing and leverage is the limit you get on it. Let’s say you have 10,000/- to invest that is your margin and leverage is limit that broker provides for trading. Like if he gives you 4 times limit that means you can make a trade where you will need a margin of 40,000/-

Why? Because broker make commission on turnover more turnover you make in buy and sell more profit he makes.

Now once your demat is open now you get a trading terminal. What is trading terminal? Well its software that enables you to go online access the Exchange and make a trade in it. You can buy and sell via that terminal. If you are not comfortable online trading, ask your broker to provide you offline trading number. One that numbers you can share your credentials and ask the person to put the trade on your behalf.

This depends on broker to broker but I have a Zerodha account I am explaining you the complete process with them.

After account opening, two emails are sent:

1. Welcome email
2. Password email

Welcome email contains login and password details to Q, our reporting tool. Q contains all historical reports; tax P&L, ledger, fund withdrawal requests, historical holdings/positions table, trade and P&L visualizations (quant reports) to help improve trading performance and more.

Password email contains the trading/Kite user ID, and the first time login password. A prompt to change this while logging into Kite for the first time will be made.

Kite is Zerodha trading terminal just like Angel Broking has Angel Eye, Kotak Securities have KEAT, and ShareKhan has TRADETIGER.

Now trading online: You need the order window on Kite hover over the scrip on the watch list to initiate a Buy/Sell order window. Use shortcut keys B or S; B for Buy and S for Sell.

You have types of trades:

CNC (Cash n Carry): For delivery based equity trades.

To buy stocks for CNC or for delivery 100% money required. To sell stocks as CNC, stocks need to be available in holdings.

MIS (Margin intraday square off): For intraday trades

Trade using MIS for additional leverage/margin. All MIS positions auto-squared off 10 to 15 minutes before close of markets or when losses exceed 50% of margin (Auto-square off rule can vary based on market conditions).

• Upto 10 times intraday leverage for equity
• Upto 3 times for futures
• Upto 3 times for options shorting
• No leverage for option buying

NRML (Normal F&O trades): For intraday/overnight F&O trades without additional leverage. Exchange stipulated margins, positions taken as NRML can be held until expiry, provided required margins maintained.

Types of Orders:

• Limit (LMT) order: Place buy or sell order at a predetermined price
• Market (MKT) order: Place an order to be bought or sold at the best available price.
• Stoploss or trigger orders (SL and SL-M): Stoploss if placing a predetermined loss booking order at a trigger price. Trigger if using this type of order to enter a fresh buy above the current market price or sell below the current market price when the trigger price is hit. SL if limit order to be sent when trigger is hit. SL-M if a market order to be sent when trigger is hit.
• Advanced order types:
• Regular orders with time validity: Day orders for orders to be valid till end of day (selected by default). IOC (Immediate or cancel) for orders to be cancelled if not filled completely immediately.
• Bracket orders: Intraday limit orders (NSE, NSE F&O) with a target and stoploss and an optional trailing SL all placed simultaneously. Target, Stoploss, and Trailing SL all activated only once the original limit order executed. SL automatically cancelled if target is met and target automatically cancelled if SL is hit. Trailing SL which is optional trails the stoploss price or moves the SL price every time the scrip moves in a favourable direction by the trailing stoploss value mentioned.
• Cover orders: Intraday market orders (NSE, NSE F&O, Currency, and MCX) with a predetermined stoploss order. Similar to bracket orders, higher leverage due to fixed stoploss and all positions auto-squared off before market close
• AMO (After market orders): Place orders for the next trading day the previous day itself. AMO orders can be placed only during the following time duration – Equity - 3:45 PM to 8:59 AM Currency - 3:45 PM to 8:59 AM F&O - 3:45 PM to 9:10 AM MCX - Anytime during the day, if placed during the market hours the order will go through the next day.

Use the orderbook to track all open, completed, and rejected orders. Edit or cancel pending orders with mouse over as shown below. 

In case you need a Zerodha account you can drop your details here on this link and they will call you and guide you with account opening.Open an online trading and demat account with Zerodha and enjoy the lowest brokerage