Are you a new investor feeling your way in and around the stock market? Opening a demat account is only the beginning of your journey in the world of trading. You still need to make yourself familiar with the stock market terms that are in use. Success in share trading depends on knowledge and experience, which are not always mutually exclusive.
It’s important to take stock of the common trading terms frequently used in the market. They will help you trade efficiently with proper knowledge. Here are some of the terms you will come across while trading with an online demat account:
Depository
A depository is an institution that helps investors to trade securities like shares and bonds in electronic form. Securities held in the depository account are like funds kept in bank accounts. Currently, there are two functioning depositories in India: National Securities Depository Ltd. (NSDL) and Central Depository Services Ltd. (CDSL). The former operates under the National Stock Exchange (NSE), while the latter comes under the Bombay Stock Exchange (BSE). Both these depositories are registered with the Securities and Exchange Board of India (SEBI).
Depository participants
Depository participants (DPs) are basically agents that connect the depository and the investor. A DP can be a bank, brokerage house, or financial institution. To avail of any service that a depository offers, an investor should have a demat account. In India, every DP must be registered with SEBI and must abide by its rules.
Trade settlement
In trading, there is always a buyer and a seller. After each trade, the securities are credited into the buyer’s account. This process is known as trade settlement. There is a fixed period for the settlement—it is called settlement cycle. It usually takes T+2 days to settle demat share trades, barring holidays. For instance, trades done on Monday will be settled on Wednesday.
Blue-chip stocks
Blue-chip stocks are the stocks of large, financially strong companies that have recorded consistent growth for several years. Both new and experienced investors purchase blue-chip stocks to get good returns and earn dividends.
Annual maintenance charges
This is the charge you pay for maintaining your demat account. It is paid on a yearly basis and differs with each DP. Remember to shop around DPs to check where the charges are a bit lower. Also, feel free to negotiate with the DP if you are planning to invest a big amount.
Transaction fee
Every investor has to pay a certain amount to trade in the stock market. This is called the transaction fee. How much you need to pay depends on a few things. The amount will be calculated based on whether you are making a purchase or a sale. Some DPs offer a flat rate for each transaction, while others take a percentage of the transaction amount.
Wrapping up
Once you open a demat account, familiarise yourself with the common financial terms. This could help you to do well in the stock market. Just do your homework and you will be good to go!
