Do you want to know the difference between Trading Account and a Demat account? No matter if you are a newbie or an experienced trader, it is essential to know the difference between them.
Both account types have their benefits, so it is essential to choose your options wisely. Continue reading this article as we provide a clear comparison of the trading account and Demat account.
What is a Demat Account?
Demat account is a term that refers to the online account of investors where they hold shares and mutual funds. Depository Participants (DP) operate the Demat account and act as a custodian of the investor’s securities.
When you purchase shares of any company, they do not get transferred directly to you. Instead, they are held in your name by the DP till you make a redemption request. In this way, there is no need for the physical transfer of securities from one party to another.
What is a Trading Account?
You may wonder what is the meaning of a trading account? A trading account allows you to buy and sell shares in the stock market. When you open a Demat account, you can proceed with a trading account. It includes the unique trading credentials you can use to buy and sell shares.
A regular participant in the share market needs Demat, trading, and bank accounts to ensure seamless trading and fund transfer. Trading accounts act as an intermediary between Demat and bank accounts. When you have an online trading account, you can access and trade in multiple stock markets from the comfort of your home.
Demat account vs trading account: Key differences
Here are the differences between a trading account and a Demat account.
- Primary difference
Demat accounts hold securities electronically, while trading accounts allow you to buy and sell shares in the stock market.
- Nature
You can also view a Demat account as a savings account that holds your money. Investors can hold dematerialized and electronic financial instruments in this account. On the other hand, trading accounts are like your current bank account. Trading in the stock market requires you to hold both accounts.
- Role
Demat accounts provide safety to trading accounts that you need to use to purchase and sell shares.
- Time measurement
Demat accounts are also measured as a stock when the financial year ends. A trading account is more like a financial statement showing transactions in a given period.
How to open a Demat account?
- You need to contact a Depository Participant (DP) like Choice India to open a Demat account.
- You will have to fill out an account opening form and submit a few documents such as address and identity proofs.
- Next, you will have to sign an agreement that includes your rights as an investor with the DP.
- Upon successful verification of your details, the DP will open your account and give you unique identity details to trade on the platform.
How to open a Trading Account?
- You can choose a broker like Choice India and check out the different trading facilities we offer.
- You will need to fill out an account opening form and share your address and identity proofs for KYC purposes.
- We will cross-check your details and create your account post successful verification.
- You will receive the credentials that you can use to access our portal and begin your trading journey.
Is it Possible to Open a Trading Account Without a Demat Account?
A trader does not need to open both Demat and trading accounts simultaneously. You can open a Demat account without a trading account as well. When you trade only in Futures and Options, you do not need a Demat account.
When it comes to IPOs (Initial Public Offering), you can buy those shares and keep them in your Demat account. However, you need a trading account if you want to sell them. A Demat account is also essential when you want to trade in the form of equities.
Bottom line
A Demat account and trading account are connected and work together to offer you a holistic trading experience. You need to hold both accounts when you trade in equities. Choosing a broker like Choice India will be an ideal option as we offer you an advanced trading portal that allows you to explore a world of possibilities in the Indian share market.