5 Key differences between Demat Account and Trading Account

5 Key differences between Demat Account and Trading Account

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Are you willing to enter the world of the stock market and training? If yes, then make sure that you know the major key difference between a demat account and a trading account as it is a prerequisite to open demat account now if you are going to start trading. 

In this article, we will have a complete detailed view of the key differences between a demat account and a trading account.

What is a Demat account?

A Demat account (short for Dematerialized account) is a type of electronic account that is used to hold and manage securities such as stocks, bonds, mutual funds, and other financial instruments in a digital format. It is similar to a bank account that holds money, but instead of holding cash, a Demat account holds securities in an electronic format.

When you purchase securities like shares or bonds, they are credited to your Demat account in a digital format, and when you sell them, the corresponding securities are debited from your account. This eliminates the need for physical certificates and makes it easy for investors to manage their investment portfolio and execute trades quickly and efficiently.

What is a Trading account?

A trading account is a type of investment account that allows an individual or entity to buy and sell securities such as stocks, bonds, options, or futures. It is commonly used by investors and traders to engage in short-term and long-term trading activities to earn a profit.

Trading accounts usually offer a range of tools and features to help traders make informed decisions, including market data, real-time quotes, research reports, and technical analysis tools. They may also offer different types of trading platforms, such as web-based, desktop, or mobile apps, to suit different trading styles and preferences.

Key differences between a demat account and a trading account;

1. The function of the account

 A Demat account is primarily used for holding securities in an electronic format, while a trading account is used for buying and selling securities in the stock market. 

2. Type of account

A Demat account functions like an account where you can store securities where they are credited or debited. However, a trading account functions like an account where transactions are processed. Both accounts are essential for trading in the stock market.

3. Responsibility

The key role of a Demat account is to ensure the safety of your securities, as they are held in an electronic format, which minimises the risk of loss or theft. On the other hand, a trading account is used to execute trades in the stock market and is an essential tool for investors and traders to buy and sell securities.

4. Role in IPO

A Demat Account is required for investors who want to register for an IPO. On the other hand, people can decide not to have a Trading Account if they do not want to trade their shares. It is not necessary to have a trading account to register for an IPO. Additionally, in the derivatives market, which does not require the supply of shares, a person who fails to have a Demat account but still wishes to own a Trading account will be able to trade in Futures and Options.

5. Identification Number

The Unique Demat Number assigned to your Demat account can be used to individually identify your account. On the other hand, a Unique Trading Number given to the trading account is used for transactions in the stock market.  For this, you need to refer to the Best trade app in India by conducting your own research.

The process to open the Accounts;

  1. Demat Account
  • Please get in touch with any of the Depository Participants to establish a Demat account. (DP). Both Central Depository Services Ltd.  have the roster posted on their websites.
  • Complete the account opening form and submit the identification and address verification papers.
  • Publish the contract. The specifics of your obligations and privileges as an investor or DP will be outlined in this agreement.
  • An account has been created for you. An identification number for the beneficial owner will now be given to you.
  1. Trading Account
  • Comparing the various service fees and amenities available will help you choose a broker.
  • The account opening paperwork should be completed. You must 
  • provide your KYC information, location documentation, and ID documentation.
  • Now, your registration will be checked by the authorities.
  • The information about your trading account will now be sent to you.
  • You are ready to start the journey of stock market trading.

In conclusion, to store your shares in an electronic format, you need a demat account, and you need a trading account to trade on the stock exchange. Both these, demat and trading accounts are essential when dealing with the stock market. 

So if you are planning to deal in the stock market, it is very crucial to understand demat account and trading as well as the difference between the two. The above-mentioned details will surely help you to overcome your queries.

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