Many aspiring traders and amateurs investors are at times confused between the meaning of a Demat account and a trading account. They think both of these accounts are the same in their features and functions. If you are one of them, you have nothing to worry about as long as you are willing to learn as you go further and improve yourself. To begin with, a Demat account and a Trading account are two completely different terms in the trade market. In this article, we will try to explain to you the difference between Demat and trading account. But before you understand the differences, you first need to understand the meaning of Demat and trading accounts.
What is a Demat Account?
A Demat account is very similar to your bank and can be explained as an account that allows you to store your shares and securities in an electronic format. It alters physical shares into electronic form, thus ‘dematerialising’ them, and that is how it gets its name. It is mandatory to open a Demat account to be able to trade in the share market. The process of opening a Demat account is fairly simple. You just have to fill a form and provide valid documents. 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. You do not need to own any shares to open a Demat account; In fact, you can even have zero balance in your account.
What is a Trading Account?
To be able to trade in the share market seamlessly and make the entire process of trading secure and speedy, having a trading account is essential. A trading account is used to buy or sell equity shares in the stock market. Trading accounts have been extremely useful since the stock market adopted the electronic system. It acts as the link between a Demat account and a bank account of the investor. When an investor wants to buy shares, he places an order through his trading account. The transaction is then processed in the stock exchange. Then the required number of shares are credited into his Demat account and a sum gets deducted from his bank account.
Now that we know the meaning of these terms, let us focus on the difference between Demat and trading account.
A Demat account allows an investor to hold shares and securities in an electronic format. And a trading account is used by an investor to place orders while buying and selling securities.
While opening a Demat account, it is necessary to get approvals from SEBI, NSDL or CDSL. Whereas the opening of a trading account does not require any such approvals and this makes it a shorter process.
- Annual Fees
In the case of Demat accounts, the account holder has to pay an Annual Maintenance Charge and the amount depends on the broker that the investor chooses. Whereas in the case of trading accounts, it has no mandatory charges which is probably why brokers mostly do not charge annual maintenance fees.
Demat accounts are mostly used by investors who invest in the financial market with the intention of holding their securities for a longer period of time. Trading accounts are usually used by investors who invest in the market but do not hold the securities for more than a day.
In layman terms, a Demat account acts as a bank locker where the securities are stored and withdrawn from. And trading accounts are used to place buy or sell orders in the market. We hope this article explaining the differences between the Demat and trading account has been helpful. So open your accounts and start trading today.