Difference Between A Demat and Trading Account INDIA: The stock market helps to create wealth. With this in mind, investment should be part of your goal no matter your profession. However, there are a lot of factors to consider when investing in the stock market as it is a systematic process.
The fundamentals of the stock market should be known and the first basic step is to open a trading account and Demat account. These two accounts are closely related but have different purposes.
WHAT IS A DEMAT ACCOUNT?
A Demat account is also known as the dematerialized account. It is where your physical shares are converted to electronic shares. This type of account gives you easy access to your account. Physical shares shouldn’t be held on for too long because it gets torn, stolen or lost but is safer with electronic shares. Plus, it can be maintained easily. A Demat account is like a bank account where you can safely store your stocks.
Note that the Demat account does not only deal with shares. It also deals with investments like bonds, government security, equity share, exchange-traded funds, and mutual funds. It is not important to have any shares before a Demat account can be opened. Interestingly, you can open with zero accounts.
You can easily open a best Demat account online without hassle. You might have to provide a personal cheque, PAN card, bank statement, AADHAAR card. And your signature on a plain background to fill the opening form.
One of the Frequently Asked Questions on the Demat account is why should I convert my physical shares to electronic shares?
There are risks involved in physical shares as it can get destroyed or lost and the paperwork in transferring physical shares can be tiresome. With Demat account shares can be easily stored, maintained, and transferred which makes it the best account.
WHAT IS A TRADING ACCOUNT
A trading account is used to buy or sell shares in the stock market and also serves as a link between your bank account and your Demat account. You can open a trading account with a registered broker in the stock market and a trading ID will be issued for online transactions.
How it works
To buy shares, orders need to be placed through your trading account, the transaction is then processed by the stock exchange. Your bank account deducts the prices of the shares, the approximated shares are then credited to your Demat account.
Importance Of Trading Account
It helps you sell your shares.
It acts as a link between your Demat account and bank account which allows you to trade in the stock market.
With an online trading account, you have access to multiple stock markets e.g. Bombay Stock Exchange(BSE), Multi Commodity Exchange(MCX), National Stock Exchange(NSE).
DIFFERENCES BETWEEN DEMAT ACCOUNT AND TRADING ACCOUNT
Difference in Function
A Demat account holds your investment and shares in the electronic format. A trading account helps in buying and selling shares in the stock market.
Nature of Both Account
Demat account is similar to how a savings account works because it allows you to keep the financial instrument in an electronic form. It can also be debited and credited. While a trading account is similar to a current bank account.
A Demat account serves as a storage space. When you trade in options, or stocks, it only helps you to keep those securities but does not involve in any transactions. Whereas a trading account helps you to conduct transactions in the stock market in the form of buying and selling. It doesn’t help to keep shares.
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Area of Settlement
Demat account settlement is done in a short period which reduces risk, whereas trading account takes a longer period for settlement.
A trading account involves no cost for maintenance, while a Demat account involves cost for maintenance.
Trading account procures your flows, while Demat accounts keep your stocks.
Demat account procures your wealth effect at a period, while trading account procures capital market transactions for a while.
A Demat account keeps your financial instrument. A trading account trades your financial instrument.
As a Demat account is used to keep your shares in electronic form and a trading account is used to trade stock, both are of great importance. For any stock trading process you want to venture into, you must have both accounts. But before going into trading, you must have a thorough understanding of how the market works and its instruments.