You might have heard of a Demat account but do not know what it is exactly. For example, you may be aware that it has something to do with trading shares and bonds in the share market. Perhaps you even know why a Demat account is a basic requirement for trading the stock market. Or do you? In any case, we bring you this article that helps you understand if you can do trading in the stock market without a Demat account.
What is a Demat Account, and How Does it Work?
Demat account is a trading facility that provides investors with securities in electronic form instead of paper. It is a safe, fast, and cost-effective way to hold your shares, bonds, mutual funds, and other securities.
A dematerialized security refers to a security held electronically on the online records of depository participants (DP) rather than on paper certificates. You can open a Demat account at any DP online or offline. You will receive unique credentials that allow you to trade at the Indian stock exchanges.
Can I Trade Without a Demat Account?
The short answer is that you cannot trade in the stock market without a Demat account. A Demat account is necessary for buying and selling shares on the stock market. You also cannot get dividends or interest from these holdings, unless they are held in physical form, in which case there would be no need for a Demat.
However, from a theoretical perspective, you can trade without holding a Demat account. It is possible through intraday trading, where you buy and sell shares on the same day. When you do intraday trading, you do not receive share certificates in your account as you would have already sold them. The process allows you to avoid a Demat account as you only use a trading account.
Do Stockbrokers Allow to Open a Trading Account Without a Demat Account?
When looking at the situation theoretically, you can do trading in the stock market without a Demat account. You can do intraday trading where you do not receive share certificates in your account. However, practically it may not always be possible to do that. Stockbrokers do not allow you to open a trading account without a Demat account.
The reason behind this is also intraday trading. With intraday trades, you need to square off your positions on the same day. You need to do it before the trading session closes. If you do not square off the trade on the same day, the shares will get delivered to your Demat account. If you do not have a Demat account, the process will not work as intended. There would be unnecessary complications that stockbrokers want to avoid.
Is it Possible to Hold a Trading Account Without a Demat Account?
No, it is not possible to hold an online trading account without a Demat account. You can instead have a Demat account without a trading account. Holding a Demat account will allow you to invest in IPOs. However, you will not be able to trade shares at the stock exchanges.
Bottom Line
Theoretically, you can do trading in the stock market without a Demat account with the help of intraday trading. However, most stockbrokers will not allow you to do that due to the position square-off considerations of intraday trades. If you are looking for information on how to open a trading account online, head over to our account opening section now. We offer free Demat accounts you can use to begin your investing journey.