Demat Account and Trading Account are two very different accounts used for different purposes in the stock market. A demat account is used for holding securities in electronic format, while a trading account is required for buying and selling. In this article, we will explore the differences between demat and trading accounts, and which one you need for which purpose.
Demat Account
A demat account, short for “Dematerialized Account,” holds securities in electronic form. Demat accounts eliminate the need for physical certificates of stocks, bonds, and other securities. Demat accounts allow investors to buy, sell and hold securities in electronic form. This is stored in the account with their respective depository participants. When an investor buys a stock, the securities are credited to his demat account. When he sells the securities, they are debited from his demat account.
A demat account also allows investors to transfer securities from one account to another electronically. It ensures the seamless and effortless transfer of securities ownership, thus making it easier and faster to trade securities.
Trading Account
Trading accounts are used to buy or sell securities on the stock market. A trading account allows investors to access the stock market via a broker or online platform. Investors can place orders for buying or selling securities in their trading account by specifying the price, quantity, and other terms and conditions.
A trading account is necessary to trade on the stock market. It allows investors to trade various financial instruments such as stocks, derivatives, commodities, and currencies. Investors need a trading account to place orders on the stock market.
Differences Between Demat and Trading Accounts
The major differences between demat and trading accounts are:
- Purpose: Demat accounts are primarily used for holding securities in electronic form, while trading accounts are used to place orders for buying or selling securities.
- Fees: Demat accounts usually incur annual maintenance charges, while trading accounts have various fees like brokerage fees, transaction fees, and regulatory fees.
- Activities: Demat accounts are passive in nature and hold securities, while trading accounts involve active participation in buying and selling securities.
- Requirement: It is possible to have only a demat account to hold securities, but not to trade on the stock market without a trading account.
Which One Do You Need? If you
To begin with, if you want to invest in the stock market, you need a demat account. It is mandatory to have a demat account to trade in the Indian stock market. A demat account makes it easier and safer to hold securities electronically as compared to physical certificates.
However, a demat account alone is not enough to invest in the stock market. You would also need a trading account to place buy and sell orders. A trading account is essential for active stock market participation. If you plan to trade various financial instruments such as stocks, derivatives, commodities, and currencies, you need a trading account.
