Difference between Demat and Trading Account
If you are planning to trade in the stock market, you may have come across these terms demat account and trading account. While many new investors use both these terms interchangeably, it is important to note that they are quite different from each other. Each type of account serves a specific purpose, and you need both to invest and trade in the share market. In this blog, you will understand the difference between the two and how they help you in your trading & investment journey in the stock markets.
What is a Demat Account?
A demat (or dematerialised) account holds your shares and securities electronically. It helps you track your investments, including Stocks, Margin trading facility, Mutual funds, Exchange-Traded funds, Bonds etc., in a single place.
Just like a bank account, every demat account has a unique account number. The demat account number serves as the identifier for your investment with a specific depository participant. As an investor, you need to make a note of your demat account number and quote it in all your communications with the broker.
What is a Trading Account?
A trading account enables you to buy and sell shares of various companies listed on the stock market. The shares purchased using a trading account are stored in the demat account electronically. And when you wish to sell your shares, you can use your trading account to sell them. With m.Stock, you can open a trading account and access features like advanced technical charts, live news and market updates, pre-designed index baskets, flexible watchlists, etc.
Demat account v/s Trading account
| Demat Account | Trading Account |
|---|---|
| It is used to store stocks and securities in a digital format. | It is used to buy or sell stocks and securities in the stock market. |
| A demat account can be opened without buying any stocks or securities. | It is necessary to transfer the funds from the bank account to buy securities. |
| You can freeze your demat account anytime and for as long as you want to ensure there are no unpredictable debits and credits in your demat account when you are not using it. | A trading account can be considered as a bridge between your bank and demat accounts. |
| When you have a demat account, you can convert your physical shares into electronic format by submitting a dematerialisation request. | A trading account allows you to trade through various exchanges, and it can be accessed on your mobile, laptop, tablet, etc. |
| A demat account gives you the benefit of getting dividends, returns or interest automatically in your account. | With a trading account, you can access all the stock exchanges in India including BSE, NSE, commodity exchanges and derivatives exchanges. |
Demat vs Trading account: Know the functionality
The major difference between the two accounts is the functions they perform. While a trading account is used to buy and sell securities, a demat account allows an investor to hold their securities in an electronic form.
For example, to buy 500 shares of ABC Ltd, you can use your trading account to carry out the transaction. Once you purchase the shares, they are credited to your demat account, and it remains in the demat account till the time they are sold. Let's say that out of the 500 shares, you decide to sell 100 shares, you can use the trading account for selling, and your demat account will be debited by 100 shares, and 400 shares will remain in your demat account.
Conclusion
Demat account and trading account work in tandem. You must open both accounts if you are looking to trade in the financial markets. m.Stock is a one-stop solution to invest in various securities, including equities, mutual funds, bonds and currencies.
