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What are Demat Account and Trading Account?

We have seen the primary requirement to trade in the stock market, now let us see what is Demat account and Trading account are in detail.

There are a few basics that you have to be aware of before investing. Two of the most important requirements for trading in a stock market involves, a Demat account and a trading account. Although these two components are vital and common, a lot of people lack clarity on it.

Demat account is used to hold your securities such as your share certificates and other documents in electronic format.

 A trading account is used for buying and selling these securities in the stock market.

 Although a Demat account and a Trading account have two different purposes, they are closely related. Actual stock market activity is a close interplay between Trading account, Demat account, and bank account.

The combination of Trading and Demat account is popularly known as a 2-in-1 account in the stock market terminology.

What is a Demat Account?

Demat is simply an account that allows you to hold your shares in an electronic format. A Demat account converts the physical shares into an electronic form, therefore dematerializing them. On opening a Demat account, you will be given a Demat account number to be able to electronically settle your trades. The workings of a Demat account are very similar to that of a bank account where you keep your money with the option to deposit and withdraw. In your Demat account too, the securities are held and accordingly debited and credited. You do not need to have any shares to open a Demat account; In fact, you can even have zero balance in your account. 

In India, depositories such as NSDL and CDSL provide Free Demat account services. Intermediaries, depository participants, or stockbrokers—like Angel Broking—facilitate these services. Each intermediary may have Demat account charges that vary as per volume held in the account, type of subscription, and terms and conditions between a depository and a stockbroker.

What is a trading account?

A trading account is an investment account that holds securities, cash, and other holdings like any brokerage account. With a trading account, an investor can buy and sell assets as frequently as they want, that too within the same trading session. Some of the key elements that differentiate a trading account from other investment accounts are – the level of trading activity, the purpose of the activity, and the risk involved in the activity. Typically, holders of a trading account are involved in day trading and are often seen exercising long-term buy-and-hold strategies.

For this reason, you need a special account through which you can conduct transactions. This is called the trading account. Without one, you cannot trade in the stock markets. You register for an online trading account with a stockbroker or a firm. Each account comes with a unique trading ID, which is used for conducting transactions. Also, each broker offers different trading account features.

To conclude you need to have a Demat Account to hold your shares in an electronic format and to trade in stock markets, you require a trading account. Both are distinctive but crucial aspects of the trading process. After opening Demat and Trading accounts, you must begin your trading journey with a thorough understanding of the market and its instruments. You must always remember to choose a mentor before investing, as investing in stocks is subject to high market risk.

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