Difference between trading account and demat account
Demat account :
Demat account is an account which enables the account holder to store all his securities in a dematerialized form. It resembles a bank account if we replace the money by securities. As per the Depository Act of 1996, by SEBI (Securities and Exchange Board of India), it is must for equity investors to have a Demat account, which dematerializes or converts your stocks and stores them in electronic format.
Trading account :
In the mid 90s transactions of buying and selling the securities were happened in an open outcry system. Later this has become an online based fully facilitating the account holder to execute all functions related to buying and selling of securities. A trading account is an account which facilitates the account holder to buy and sell the securities by placing different types of orders. This enables him to execute all the functions related to trading in the stock market. Trading account helps you conduct the trade without visiting the market counter and placing the orders physically.
Point of difference :
To say simply ,trading account is used to place buy or sell orders in the stock market, while demat account is used as a bank where shares bought are deposited , and where shares sold are transferred to the buyers account. One needs both demat and trading accounts to trade in the market. (1) Trading account acts as intermediary between the bank account and the demat account. When ever an order has to placed it is executed through trading account using the software provided by the brokers. And the resultant securities will be credited to your demat account once your transaction gets completed. (2) Maintenance charges will not be there in trading account because the frequent orders placed by the trader using the trading account will earn the broker high revenue, whereas in case of demat account it functions only as a storage center. Thus demat account provider charge maintenance charges. Let’s discuss an example how the things happen among bank, demat and trading account. Mr Amit wants to invest his savings in shares and after a journey of 6 mons he wants to see himself as a professional trader. Now first of he has to open a bank account where all the monetary functions will happen. After that he should open a trading and demat account. After getting allotted all these accounts When he wants buy the shares of HCL then first he has to put a buy order using his trading account. Once if the order gets processed then he becomes liable to pay the price of those securities. His bank account which is linked to trading account will transfer the required funds to his trading account initially before placing the order which enables him to place the buy order. The funds transferred from the bank account to trading account will make the settlement for the securities bought. After making the payment he gets the securities into his demat account in electronic form. In future if he wants to sell the securities then the mechanism will be same but from selling perspective. If he wants to transfer his securities to any other relatives or anybody by way of gifts then he can do this by just submitting a delivery instruction slip to his demat account providers which we call as Depository participants. Recommended Articles
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