Even if you are new to the trading world, we are sure that you must have heard terms like a Demat account or a trading account. Both the Demat account and the trading account are important and necessary accessories for traders, to begin their trading journey in the stock market. The great thing about both these accounts is that you can easily open a demat account and a trading account online. Here, we will have a look at both these accounts separately and then, how they are different from one another.
Understanding the Demat Account
The Demat account is short for Dematerialized account, which helps investors hold their securities in electronic form, a far cry from the traditional way of holding physical security forms. Think of the Demat account as a bank account but for your securities and investments like shares, bonds, ETFs, mutual funds, etc. With the help of the Demat account, investors can do away with the need to hold share certificates physically and avoid any potential threat to their safety too.
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Understanding the Trading Account
The main purpose of the trading account is to help investors buy and sell securities in the stock market. After you open a Demat account, you need to open a Trading Account to buy and sell securities, with ease. The trading account comes with a unique trading number that will aid in the trading of securities in the market.
Differences Between the Demat and Trading Account
Having gone through the basics of what both the Demat account and the trading account are, here is a look at the differences between them.
| Aspects | Demat Account | Trading Account |
| Functioning | The main purpose of the Demat account is to store the securities an investor has bought in electronic format | A trading account is needed to buy and sell securities in the stock market and to carry out the actual trading activities. |
| Working | The working of the Demat account is very similar to a savings bank account. | The trading account’s working is similar to a current bank account where the account holder can carry out transactions |
| Aim | The demat account aims to provide investors with a safe space to store and manage their securities, electronically, instead of having to take care of physical security certificates. | With the help of the trading account, investors gain access to the stock market and can carry out the buying and selling of securities with ease. |
Importance of a Demat Account
Here’s a look at why, as an investor, it is important to open demat account to start their trading journey:
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- With the help of the Demat account, account holders can hold different financial instruments under one roof. This can include equity shares, mutual funds, ETFs, government securities, etc.
- Without a Demat account, an investor cannot start their trading journey as they will not have any place to store their investments.
Importance of a Trading Account
Since we have seen why the Demat account is important, let us also have a look at the importance of opening a trading account.
- With the help of the trading account, investors can place orders for a particular trade which will then be completed on the right stock exchange.
- Shares bought through the trading account are transferred to the Demat Account where they are stored till the time they need to be utilized.
- The trading account is interlinked with a holder’s Demat Account and Bank Account.
- When you open a trading account online, you gain access to different stock exchanges like the National Stock Exchange or NSE and the Bombay Stock Exchange or BSE.
Conclusion
If you are to start your trading journey, having both a Demat account and a trading account is important. Both these accounts have their fixed functions and both are necessary for a user to have a smooth and safe trading experience.