If you’re new to stock trading, you might have heard terms like Demat Account and Trading Account many times. But what precisely are these accounts for, and why do you need both? In this post, we’ll explain the distinctions between a Demat and a Trading account in a straightforward manner so that you can understand their functions and how they work together to make your investing experience easier.
What Is a Demat Account?
A Demat Account also called as Dematerialized Account may be best described as an electronic repository account which holds your shares and securities in a electronic form after they have been purchased. They range from stocks, bonds, mutual funds, of any asset, through virtual safe deposit box that belongs to you exclusively.
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What Is a Trading Account?
A Trading Account on the other hand is the account which you use for trading on the stock exchange. In simple term, each time you apply for a buy or a sell order in the stock shares, it is shown through your trading account. It behaves as a platform to trade in the stocks as it allows its users to monitor market real-time prices, place orders, as well as control their held stocks.
Demat vs Trading Account
| Aspect | Demat Account | Trading Account |
| Purpose | Stores securities in digital format | Executes buy and sell orders for securities |
| Primary Function | Holds your stocks and investments | Facilitates transactions in the market |
| Ownership | You own the securities in your Demat account | You need a trading account to buy/sell them |
| Role in Transactions | Securities are transferred in/out of the Demat account after trading | Used for executing market trades |
| Required for | Holding securities after purchase | Making transactions (buying and selling) |
Ways of Opening the Demat and Trading Account
Both applications can be done smoothly with a broker or financial institution and it would not be quite difficult to open it. Here’s a quick guide:
Choose a Broker:
Choose a stockbroker or a bank that provides Demat as well as Trading account.
Submit KYC Documents:
Give your KYC details, PAN detail, address proof, and your bank details as well if needed.
Complete the Application:
Complete all the forms for both accounts, either electronically or on paper, and send them.
Link Your Bank Account:
The two accounts will be associated with each other so as to simplify the money transactions between the two accounts.
Start Trading:
After activation of the accounts you are ready to go and you can begin to trade in shares.
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Conclusion
Demat Account stores your physical share certificates in electronic from, and the Trading Account enables you to get into the market and trade. Combined, they are the core of your investment process.so if you are really interested in trading in the stock market, ensure that you open both accounts.
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