To know the difference between a Demat Accountand Trading Account, we must first know what are Demat and Trading accounts.
What is a Demat Account?
A Demat account is an account which lets you store your shares and securities in an electronic format. It converts physical securities and shares into electronic form, thus ‘dematerialising’ them. The process of opening a Demat accountis very simple. You only have to fill a form and provide valid documents for verification. Once the verification is complete and the application is processed, your Demat account is good to be used. Once the Demat account is opened, you will be given a Demat account number to be able to carry out transactions. It works just like a bank account. You don’t have to have any shares to open a Demat account; truth be told, you can even have zero balance in your account.
What is a Trading Account?
To have the option to carry on with your stock trading exercises, you need a Trading Account. The purpose of this statement is on the grounds that when an organization records its assets in the market you are able to trade on an automated framework through a customized account, bettercalled a trading account. To get one opened you need to enlist with a brokerage firm or a stockbroker. Opening a trading account gives you a one of a kind trading id which gives you permission to lead trading transactions.
Comparison between Demat Account & Trading Account:
- The purpose of Demat Account vs Trading Account: The maindissimilarity between these two accounts is the functions that they perform. A trading account can beutilized for the purchasing and selling of securities. It gets deducted from the Demat account and traded in the market. Whereas, Demat account permits investors to save their stocks and shares in an electronic format. Securities in electronic format can also be converted to physical form.
- Nature of these accounts: When compared to the banking system, a trading account is similar to a current account. It links your Demat account to the bank account you own. And a Demat account is similar to a savings account.
- Role of these two accounts while trading in the stock market:Both, the trading as well as Demat accountwith every one of their disparities, are significant for trading in the stock market. If you are a financial investor who holds shares in electronic format and you purchase the shares of an organization, you utilize the trading account to complete the process. You bank account is charged and the shares can be seen in your Demat account where they are then credited.Also, when you sell your shares through your trading account, the corresponding number of shares get charged from your Demat account and traded in the market. The returns of this deal are attributed back to your bank account. Hence, in order to trade the stock markets, it is obligatory to a Demat account and a trading account.
What is the procedure of opening a Demat Account?
Step 1: Contacta depository participant and fill a form required to open a Demat account. To get a list of Depository participants, log on to the websites of the two depositories in India, Central Depository Services (India) Ltd , and National Securities Depository Ltd.
Step 2: Fill the form to open a new account and attach documents that required.
Step 3: Go through the terms and conditions before signing the documents.
Step 4: Once the verification is completed, DP will initiate the process of openingan account in your name and give you a personalized Demat account number, which is also called a Beneficial Owner Identification Number, then you may start trading.
What is the procedure of opening a Trading Account:
Step 1: Select a stockbroker or a brokerage firm after a thorough study of charges and other services.
Step 2: Fill a form for account opening with the firm. You need to undergo KYC formalities and attach valid documentation.
Step 3: Wait until the verification process for the account is completed.
Step 4: Once the verification is complete, be sure to take your account details.
Step 5: Start trading.
In spite of the fact that the opening of trading and Demat accounts is simple, it can be complicated to know the difference between the two. Make sure you have a good grasp of the market and do not hesitate to ask an expert for advice.
Hemant Kumar is a project manager at Tridindia with more than nine years of commendable experience in writing about LMS, translation, and IT. His unmatched talent and passion for digital marketing gave him the opportunity to work as a multi-tasking project manager at TridIndia’s sister company, Link Building Corp. Today, he contributes to the world by imparting knowledge on SEO, link building and internet marketing etc., that helps business owners grow their online business.