Whether you are a trader or investor in the stock market, there are a few basic concepts that must be clear to you. The primary requirement for trading or investing in the Indian stock market is having a trading and demat account. You must have heard about these two account names very often but still, there is a lack of clarity about the meaning and difference between these two accounts. In this article, we will try to resolve all your doubts regarding the demat account and trading account.
Let us first learn what is demat account.
What is Demat Account?
Demat account, also known as dematerialized account holds your shares and securities in an electronic format. It is called dematerialized account because it converts the physical shares into electronic form. Demat account works very similar to that of a bank account. In a bank account you have the option to deposit and withdraw your money, similarly, in the demat account, you have the option of debit and credit of securities. You can open a demat account with zero balance and there is no compulsion to have any shares in the demat account while opening it.
Let us now learn what is trading account.
What is Trading Account?
In order to trade in the Indian stock market, it is compulsory to have a trading account. The shares of the companies listed in the stock market can be traded through the electronic system using a special account that is called a trading account. You can open a trading account with a stock broker by registering yourself. The stock broker will provide you with the client ID through which you can indulge in trading of shares and securities.
Let us now learn about the difference between demat and trading account
Difference Between Demat Account and Trading Account
- Functionality
The trading account helps in buying and selling of securities. This account debits securities from the demat account and they can be sold in the market.
On the other hand, the function of the demat account is to hold the securities in an electronic format. You also have the option of converting your electronic securities into physical form.
- Nature Of The Accounts
The trading account is just like your bank’s current account. The trading account links your demat account with your bank account. It withdraws your shares from the demat account and sells them in the market.
While the demat account stores your shares and securities that you purchase from the market in the electronic format. In fact, demat account functions like a savings account which is very different from the current account of the bank.
- Role Of The Accounts
The demat account and trading account are very different from each other but yet they are very important for trading and investing in the stock market. When you invest in the market by buying the shares of any company, you do it by using the trading account. The transaction gets completed when money is debited from your bank account and the shares are credited in an electronic format to your demat account.
When you sell the shares held by you in the demat account, it is done through the trading account. The trading account sells your shares in the market by debiting them from your demat account. The proceeds of the sale are credited into your bank account and the transaction gets completed. Therefore, to invest in the stock market it is compulsory to open both the accounts.
The above mentioned are few of the differences between a demat account and a trading account. If you want to trade or invest in the stock market and want to open trading as well as demat account, you can consider opening them with Kotak Securities. They are the leading broking firm of India and known for their customer friendly services. More importantly, they provide quality services at very affordable rates.
