When it comes to investing in stock markets, you need to know a few basic concepts. An account for Demat and an account for trading in the stock market are among the essential requirements for trading.
A demat account is an account in which shares, or other assets, are stored in a dematerialized form. The purpose of a trading account is to enable you to transact. Even though these two accounts are crucial, many people do not understand how they relate.
What is a Demat Account?
Accounts that are dematerialized are known as Demat accounts. To put it another way, dematerializing or converting your shares into the electronic format is known as opening a Demat account.
Electronically stored shares and securities of publicly traded companies are held in a Demat account. With a Demat account, you can purchase bonds, equity shares, government securities, and mutual funds, as well as exchange-traded funds.
Demat accounts are credited or debited every time you buy or sell shares of a company, similar to bank accounts.Additionally, it streamlines the process of trading shares, which eliminates unnecessary paperwork.
Central Depository Services Limited is a Demat account holder in India as well as National Securities Depository Limited.
What is a Trading Account?
Trading accounts are used to buy and sell equity shares on the stock market. The open outcry was the system used by the stock exchange previously. The traders communicate their buying/selling decisions using hand signals and verbal communication.
The open outcry system of the stock markets was replaced by trading accounts shortly after the electronic system was adopted. Online trading provides the convenience of placing orders without the buyers and sellers physically attending the exchange.
Instead, an actual stock market broker will handle trading, so they need to open a trading account. Online transactions are performed using a unique trading ID associated with each account.
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Difference between Demat Account and Trading Account
- Functionality of Demat vs. Trading Account
Each account performs different functions, one of the significant differences between them, by debiting your Demat account and selling your securities in the market.
An investor can hold their financial instruments in an electronic format through a Demat account. This method also allows you to convert the electronic form of your securities into physical form.
- Nature of Demat vs. Trading Account
Your trading account works the same way as your bank account does; it is connected to both your Demat and your bank account. This model works by withdrawing your shares from your Demat account to sell them in the market.
Demat accounts are places where you store securities and claims that you purchase on the market. Demat account functions like a savings account instead of a trading account, which functions as a current account.
- Role of Demat vs. Trading Account
As different as they may be, both accounts are essential for any trading in the stock market. The trading account is used by investors when they purchase the shares of a company. In addition, the claims of stock are credited to your Demat account, where they are debited from your bank account.
In the same way, when you sell shares on your trading account, funds are debited from your Demat account, and the stakes are then sold on the market. All the proceeds from this sale will be credited back into your bank account. As a result, both a Demat and a Trading account must trade on the stock market.
|Demat Account||Trading Account|
|It is used to handle the electronic version of the financial securities in a safe way||The trading account helps to transfer our financial instruments from one account to another account in a very easy way.|
|We can’t make any transactions or we don’t have the option of making transactions.||All the transactions related to stocks will take place in a trading account only|
|The Demat account charges are paid annually by the investors.||Trading accounts are usually free of cost but some companies do charge amounts.|
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How to open a Demat Account
Creating a Demat Account is as simple as following these steps:
Step #1: You must speak to a depository agent or participant to fill out the application required for opening the Demat account. Depository operators such as National Securities Depository Ltd and Central Depository Services (India) Ltd offer services that allow you to access the list of depository participants (DP).
Step #2: Provide copies of ID and address proofs along with the account opening form.
Step #3: As an investor, sign an agreement with the DP defining your rights and responsibilities. Remember to request a copy of the agreement and the associated charge schedule.
Step #4: The DP opens Demat accounts, and The DP issues beneficial Owner Identification Numbers.
How to open a Trading Account?
Creating a Trading Account is as simple as following these steps:
Step #1: Start by choosing a brokerage firm or broker.
Step #2: Make sure to compare brokerage rates and services before making a decision.
Step #3: Please get in touch with the shortlisted broker to open your account.
Step #4: Fill out a form to open an account, which may require you to provide KYC details. The application must be accompanied by proof of identification and address.
Step #5: You must go through an application verification process.
Step #6: Get information about your trading account and start trading.
Demat and trading accounts have been made accessible to investors, but you must analyze the stock markets and the instruments traded therein before investing. Stock investments are subject to market risks and should be accompanied by professional guidance.
Frequently Asked Questions
Which is the best Demat and trading account?
Currently, Upstox is my recommendation of the best Demat account opening website for 2021 in India. The Mumbai-based Upstox discount broker company is backed by several top names, including Ratan Tata. Over 40 lakh traders use the company. Compared to other brokers, Upstox offers low brokerage charges along with advanced charts.
Is Zerodha a Demat account or a trading account?
A Zerodha Demat account is one of the services the company offers. With this service, the customer gets access to both a trading account and a Demat account as part of a 2-in-1 account that allows seamless transactions between them. As a Depository Participant (DP) with Central Depository Services Limited (CDSL), Zerodha holds securities.
Can I open a Demat account without a trading account?
There is no need to have a Trading Account to have a Demat Account. Demat accounts are appropriate if you want to keep the stock shares after a successful Initial Public Offering (IPO). You would, however, require a trading account if you were to sell these securities in stock markets.
Can you have Two Demat accounts?
It is legal for investors to open two or more Demat accounts to use the same PAN number. However, a depository participant cannot hold two Demat accounts at the same time. Through DPS, investors communicate with India’s two depository institutions that offer Demat services – NSDL and CDSL
A trading account and a Demat account are required to buy shares in the stock market. Demat accounts are a means of storing your claims. Transacting on your Demat account is not possible. Only your trading account can be used to transact.
Which Demat account is free of cost?
Motilal Oswal Free Demat Account provides a range of financial products and services to customers through this Demat account rolled out by the firm. The Motilal Oswal Demat account features zero annual maintenance fees (AMCs).