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Friday, April 19, 2024

What Are The Roles Of Demat And Trading Accounts?

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Making money in the stock market is not a gamble. Various intricacies drive a stock market. To make money in stocks, you need to do full research and understand the fundamentals of the company. The first step of the financial journey starts with opening a demat and trading account. 

The difference between a demat and a trading account can help you trade effectively for gains. You can further commence your financial journey by understanding the following topics: 

Meaning of Demat Account 

It is used to convert physical securities in dematerialized form. Working on a demat account is similar to a savings account. When a buy order is placed the security is deposited into a demat account and when a sell order is placed the securities are debited from the account. 

Importance of Demat Account

  • You can trade in a variety of financial instruments other than equity shares such as; bonds, commodities, government securities, and many more. 
  • It keeps a record of your financial statement, along with providing a platform to trade. 

Working

  • After the document verification, your broker will provide you with a unique Demat Account Number and password for your trading portal. 
  • The electronic portal will allow you to deposit or withdraw money at your convenience. With the deposited money, you can buy and sell securities.  

Meaning of a Trading Account

A trading account is used to purchase and sell shares on a stock exchange. Once your demat account is active, this account will be used to buy and sell securities.

Importance of a Trading Account

To begin investing in the Indian stock market it is important to have three accounts; a demat, trading, and a bank account. A trading account creates a safe space interconnecting the demat and bank account. Thus, transactions take place smoothly. 

Trading account previews real-time price movement of financial securities on the platform. It is possible for a trading account as it shows the data directly from the servers of exchanges; Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). 

Differences between trading and demat account

Fundamental Difference

The basic difference between a demat and a trading account; a demat account’s main function is to keep financial securities safely locked in the electronic form. Whereas the trading account is the transaction account.

Nature

Having a demat account is similar to having a savings account. At the same time, a trading account works as a current account. Thus, it is used only for purchasing and selling stocks.    

Functionality Difference

Demat account’s main function is to keep financial securities safe. Whereas a trading account’s main function is to oversee the transaction that involves the transfer of financial securities. 

Frequently Asked Questions 

Can I open a demat account, without a trading account? 

Yes, there is no obligation to open both accounts. You can use a demat account to hold financial securities or to transfer physically held shares into electronic form. But you will require a trading account if you wish to sell these shares. 

Can I apply for an IPO without a trading account? 

Yes. Once shares are allotted to you, on the day of listing, they are credited into your demat account directly. However, a trading account will be required to sell the allotted shares. 

Does a trading account work If I do not have a demat account? 

Yes. However, you will not be able to take delivery of the shares. You can only trade in futures and options and currency derivatives. Derivative transactions are settled in cash. 

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