What is a Broker?
A broker, in simple words, is a middleman who arranges a buyer for a seller or vice versa & charges commission for these services. In the stock market also, we have stockbrokers. A stockbroker is an individual or an organization that acts as an intermediary between an investor & securities exchange. You can only transact in a stock market via a registered intermediary which is a stockbroker.
What is a Demat & trading account?
Just like a bank account is used for holding funds, a Demat account is used to hold shares & securities in electronic forms. Gone are those days when shares & securities were held in physical form (like share certificates). The importance of Demat account can be highlighted/emphasized by the fact that you can’t buy & sell shares on a recognized stock exchange without having a Demat account in the first place (mandated by SEBI).
In India, there are two depositories with whom you can open a Demat account -NSDL (National Securities Depository Ltd.) and CDSL (Central Depository Services Limited). An investor doesn’t deal directly with the depositories. He needs to contact depository participants (usually stockbrokers), who acts as an agent between the depository & the investor. Depository participants charge the Demat account holder with annual maintenance charges as a fee to maintain Demat account with them.
A trading account allows you to buy and sell shares & securities electronically. Earlier there used to be an open outcry system wherein traders who wished to buy or sell had to be physically present in the stock exchanges and had to verbally communicate their intentions to the other parties. With the advent of technology, stock exchanges are now online and because of this, the trading accounts have replaced the open outcry system entirely.
A trading account acts as a link between your Demat account and bank account. You buy and sell shares using your trading account. On buy, money gets deducted from your bank account & shares get deposited in your Demat account. When you sell, money gets deposited in your bank account & shares get debited from your Demat account.
A Trading account can be understood by an analogy with a cash counter used in a business: When you do some business, you maintain a current bank account as well as a cash counter. You do all the cash transactions using cash at the cash counter. At the end of the day, you deposit all your cash in the current bank account. Similarly, you have a trading account to conduct your trading activities. At the end of the day, if you are net buyer, shares get credited in your account & if net seller, shares get debited from your demat account.
How to open a Demat and trading account?
When you open a Demat account, that stockbroker also opens your trading account to facilitate buy and sell. The process of opening a Demat account usually involves, more or less, the following steps:
- Select the broker (Refer our article on List of Brokers and their charges)
- Fill up the form (online or physical) & provide the documents for your KYC.
- Select what type of trading account you want to opt for (like equity trading account, commodities trading account or both)
- Pay the charges for the opening of Demat & trading account.
After understanding what Demat and trading account is, you need to select the broker to get the Demat account open and to begin your journey in the stock market.
Here , we provide you all the details about the broker which concerns you and also attaching the list of best brokers in India, along with their rankings(as per NSE) based on active users and brokerage charges.
How to choose the right Broker?
Selecting the right broker is critical to your success in the stock market.
Generally, the ease of use and charges are the major point of consideration to select a broker for initial investors. But facilities provided, downtime, cash deposits/withdrawal into/from Demat account can also be taken into consideration.
For the initial investors, we recommend going with one which has the lower charges, afterward, you may shift to another one which suits you.
Stock Broker Charges
Stockbrokers charges for their services. Usually, these charges include the following:
- Brokerage: Levied on each buy & sell order
- Opening Charges: Some Brokers charge a one-time fee when registering with them.
- Annual Maintenance Charges: Charges for maintaining your Demat & trading account.
It is important to consider the fees, especially brokerage while selecting the broker. Selecting a broker with higher charges may eat up your substantial profits. Therefore, we have listed down for you the top seven brokers of India (in terms of active users) and their charges in the following tabular format:
So, after opening the Demat account, you are all set to enter the market.
Now the question arises, to opt for Trading or Investment
In the coming articles, we will provide details on Investing, Trading, types of analysis, and strategies to opt for.
Read and understand those aspects as they are the most crucial part to begin your journey.