Difference Between Demat Account and Trading Account | What is Demat & Trading Account
we have covered 1) Difference Between Demat Account and Trading Account 2) What is a Trading account 3) What is Demat account 3) How transactions work in Demat and trading account and many more. The trading account provides a platform to buy/sell the share in the market. It acts as an intermediary between saving accounts and Demat accounts. They will take the share from your Demat account and sell them in the market. They will take money from your savings account and buy a share to keep in a Demat account. The Demat account is a facility to keep your shares in an electronic dematerialized form.
What is demat account
Holds the financial securities in electronic form. If it holds the share certificate in physical form it will be converted to electronic form with a Demat account. Then it is given a facility to access as a bank account. It allows you to store stocks at a safe location. The bank account records debits and credits. The account will record the sale and purchase of shares. Demat account is not available for limited shares and holds diverse investments like Equity Shares, Bonds, Government Securities, and Exchange Traded Funds. So when we open the Demat account you will get an account number electronically to settle your trades. It is not compulsory to have any shares to open a Demat account. As you can have zero balance in your account.
What is a trading account
In the past, the stock market was run with traders by using hand signals and verbal communication to convey their decisions to sell/buy. They were replaced by a trading account when Stock markets and digitized. These can be opened with a registered stock market broker with a unique trading identifier to perform the transactions online. When you decide to buy shares the order is needed to be placed through the Trading account. The transaction will go to the stock exchange for processing purposes. Then the price of shares is deducted from your bank account and specific shares will get credited to your Demat. The same process is carried out for the sale of stock. It is clear that a trader account is used to buy/sell shares in the stock market whereas the Demat is a bank account used to hold your shares. Lastly, it will record the buys and sells.
The shares are traded in digital mode means when you buy a share you don’t worry about the security of physical share certificates. Because the shares are stored and transferred in digital mode with Demat Account. No need to be available physically while trading the floor to place your buy/sell order. The process is done through a trading account which is accessed on mobile/laptop.
2) Nature
At any time your Demat will show the shares and securities that you are currently holding. These will show the transaction that you carried out in the stock market.
3) Role
There are two parts to the trading process. First, we need an interface to buy and sell shares from the stock market storage space to keep the shares. The Demat is a repository as it helps to deliver shares when trading in equity and allotment of shares. This helps you transact in the stock exchange needed. Basically, the trading account is already linked to your bank account. Then the money is added from your bank account to your Trader Account and vice versa. Then trade goes in futures and options if you have a trading account that doesn’t involve the delivery of shares. They are integrated as they make the entire trading process swift and convenient.
4) Compliance
To open a Demat /trading account you need to approach SEBI approved broker and Depository Participant registered with NSDL/CDSL. The number of Demat/trading accounts that a person possesses is not limited as the point is not having multiple accounts. So check all the charges and compliance certificates displayed on their website.
5) Nature
The shares are sold/bought as they are stored in the dematerialized accounts. Acts as an intermediate between the Demat accounts and bank account. The shares are held in a Demat account and are sold in the stock market using a trading. The Demat account is the same as the savings account/storage facility.
6) Functional Differences
The function of a dematerialized account is secure storage. It performs the function of re-materialization means the conversion of shares from electronic to physical form. The task of selling and buying stocks is the responsibility of trading members. The responsibility is followed under the instruction of the client/ client themselves. If a trader wants to trade currency only a trading account is required. But if a trader wishes to trade stock both accounts are compulsory.
