The current online trading system has made the stock market abundant with retail investors, especially during the pandemic. Stock exchanges have been functioning virtually through a network of computers since the mid-90s, and all the buy/sell trades in the stock markets occur electronically. Electronic transactions are completed through an electronic system for share trading.
There was a time when stock investments were the domain of wealthy and influential investors only as they were capable and courageous enough to take the inherent risks. Now, it is the digital era, and time has changed. In the technologically advanced age, numerous retail individuals own stocks as they can easily open a demat account along with trading account and invest in stocks using an online trading platform. Verify your KYC documents and PAN details, and you are ready to grab the increasing opportunities in the stock market.
Let us elaborate on how demat and trading accounts facilitate online trading to understand the demat account trading system. No demat and trading account means no stock trading.
How Demat Account Works
A dematerialised account, popular as a demat account, is the online repository that ensures the safety of your financial securities. Dematerialisation can be defined as transforming paper-based securities into electronic/digital form. Holding your dematerialised financial securities is the primary function of a demat account.
With a demat account, you need not be present at the stock exchange personally to place a buy/sell order. Gone are the days when investors had to yell on the grounds of a stock exchange to place a trade order and then wait for months to complete a trade. Take your smartphone or laptop, log in to your demat account, keep an eye on the market movements, and invest. An online demat account facilitates investors with:
- A security tool that has removed the burden of storing the securities in paper form. The electronic form of securities in the demat account saves you from the botheration of holding paper-based securities.
- Easy and quick transfer processing to buy/sell shares, unlike the open outcry trading system.
- Monitoring Tool – Your demat account preserves multiple securities in a single account that can be monitored easily in one place.
- A solution to the odd-lot issue that allows investors to invest in even a single share. Trading single security was not allowed in the offline trading system.
Price Dynamics in the Demat Trading System
Effective price discovery is always important in the stock market. It ensures the accuracy of price signals that have a widespread economic impact. It enables investors to make appropriate investment decisions and contribute to ultimate financial objectives.
Price formation in the demat trading system results from precise order execution algorithms based on underlying supply and demand for the security. Trading volume is the main factor of such precision.
Reduced Costs for the Demat Trading System
The online trading system has reduced the investing and trading cost. Offline trading involved huge stamp duty and brokerage costs. With the introduction of discount broking to meet the rising demand for demat services, stock trading has reduced significantly. You can open a free demat account or a regular demat account based on your investing needs.
This is how online trading has facilitated investors with easy accessibility of the stock market. Online trading is a subject of continuous learning. You must have understood the demat account and online trading system. Further, you can continue the learning process with basic terminologies. As an investor, you should understand that the easy accessibility of the stock market does not mean that online trading can be taken lightly. A small mistake may lead to huge losses. Therefore, you need to make informed decisions for stock investments and trading. Investors utilise the available resources to make informed investment decisions like research reports provided by the stockbrokers and the company’s financials available for the public.
