A Demat account, short for dematerialized account, electronically stores your securities in a digital format. These securities could be shares, bonds, mutual funds, government securities, and other financial instruments. Keeping securities in a demat format makes it easy to manage, transfer and secure your securities, and eliminates the risk of loss or theft associated with physical certificates.
Topics Covered
- Understanding the Importance of Demat & Trading Account
- Trading Account vs Demat Account
- How Demat and Trading Accounts Work Together
- Conclusion
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On the other hand, a trading account is an intermediary account between investors and the stock exchange. It allows investors to buy and sell securities in the stock markets. A trading account basically facilitates order placement and order execution for equity, derivatives, commodity and currency.
In order to open a zero brokerage demat account & trading account, you need to submit PAN, Aadhaar, your consent & latest pictures to a registered depository participant (DP) and a SEBI registered stockbroker.
While demat & trading account are often used interchangeably by beginners, it is important to understand the difference between the two accounts. Both accounts serve distinct purposes.
While a Demat account focuses on safekeeping and holding securities, a Trading account is used for executing trades. You can open a 2 in one or 3 in one demat account and integrate your trading, demat & bank account functions together.
Recommended Read: Demat Trading Account Fees & Charges
Understanding the Importance of Demat & Trading Account
Before diving deeper into the difference between Demat & Trading , let’s first understand the Importance of the two account
Demat Account
A Demat account enables you to trade digitally. It eliminates the need for physical share certificates by converting them into electronic form. You can conveniently access your demat account on a trading website/ app offered by your broker. Some benefits of opening a demat account can be listed as: safekeeping of securities, easy transferability, and low risk of loss or theft associated with physical certificates. Demat account opening involves submitting necessary documents and identification proof to a registered depository participant (DP). The types of securities held in a Demat account include shares, debentures, bonds, government securities, and mutual fund units.
Trading Account
A Trading account is an intermediary account between the investor and the stock exchange. It allows investors to buy and sell securities in the stock market. The purpose of having a Trading account is to execute trades, track market movements, and manage investments. You can access your trading account from a trading platform/app offered by your broker and conveniently place orders, use market analysis tools, and avail real-time price updates. To open a Trading account, one needs to approach a registered stockbroker or a brokerage firm. Various types of trades, such as equity trades, derivatives trades, commodity trades, and currency trades, can be executed through a Trading Account.
Trading Account vs Demat Account
- A Demat account is used for holding and safeguarding securities, while a Trading account is used for buying and selling securities in the market.
- In a Demat account, securities are stored electronically, whereas a Trading account provides a platform to execute trades.
- The types of securities held in each account differ.
- A Demat account can hold shares, bonds, mutual funds, and other similar securities. while a Trading account deals with securities meant for trading purposes only.
- A Trading account allows buying and selling equities, derivatives, commodities, and currencies.whereas a Demat account does not directly enable trades.
- Investors are required to have access to both a Demat as well as a Trading account to participate in the stock market
Recommended Read: How to Convert Physical Shares to Demat Account?
How Demat and Trading Accounts Work Together
A Demat Account and a Trading account work in tandem to facilitate seamless investment & trading experience. They are interdependent as the Demat account holds the investor’s securities, and the Trading account enables the buying and selling of those securities. Thus, linking your Demat account with the Trading account is essential to ensure a smooth and efficient investment experience. This is why most brokers offer 2 in 1 demat & trading account and 3 in 1 account that link your demat, trading as well as bank account for smooth functioning.
Conclusion
In conclusion, the difference between a Demat & Trading account lies in their purpose. Having a clear understanding of these differences is vital. Both accounts are equally important for investing and trading purposes, and it is crucial to have both accounts to participate effectively in the stock markets.
Recommended Read: Tax implications on Demat Account
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