The one misconception that moves around is – a trading and a Demat account are the same – or more often – they work for the same cause. Misconceptions are natural – this article is to clear that path for you. Especially for the ones who want to invest in stocks and the share market – this is a needed basic you would have to know. So here, we can speak about Demat and trading accounts – and how they are different from one another.
What is a Trading Account?
A trading account is utilized to buy or sell equity shares in a stock market. Before, the stock exchange functioned on an open system. The traders used to use hand signals and verbal communication to convey their buying or selling decisions.
Soon, the stock market adopted the electronic system – that was trading accounts, instead of the open system. In the old method – the buyer and the seller do not have to be physically present at the stock exchange or market to place an order.
But, with trading accounts, they open a trading account with the registered stock market broker who will conduct trading on their behalf. Every trading account has unique trading IDs which are used to perform online transactions.
Let’s get going for the next term.
What is a Demat Account?
A Demat Account, which is also known as a Dematerialised Account, allows you to hold shares and assets in an electronic format. Did you know that shares are purchased and held in a Demat Account with online trading, making it easier for customers to trade?
A Demat Account consolidates all of an individual’s investments in stocks, government securities, exchange-traded funds, bonds, and mutual funds.
Demat enabled the digitalization of the Indian stock trading market and compelled SEBI to improve oversight. Furthermore, by storing stocks in electronic format, the Demat account minimized the hazards of storing, theft, damage, and malpractices.
NSE originally presented it in 1996. Initially, the account opening procedure was manual, and investors had to wait several days for it to be activated.
How to Open a Demat Account
These days, you can open Demat on Groww or for that matter, in any other brokerage in just 5 minutes. Let’s figure out how.
Step 1: The first step is to make up your mind on a depository partner or broker where you want to open the Demat account. This choice needs to be made based on the brokerage charges, fees, and much more.
Step 2: You will now have to get the application or portal and submit your KYC documents.
Step 3: After thoroughly reading – you can accept the terms and conditions and proceed.
Step 4: After you proceed, your account will be open, and you can start buying shares.
Let us get to the other side of this coin.
How to Open a Trading Account?
Opening a trading account is not hard either. Just read on.
Step 1: You need to again select a firm – just as you did for a Demat account.
Step 2: Compare the service charges of various other firms.
Step 3: Get in touch with the firm’s helpdesk to open an account.
Step 4: Fill in your info, and submit your supporting documents.
Step 5: Get through with your application verification procedure.
Step 6: Get the details of your new trading account.
Step 7: Now, you are all set – just place your order.
You might be wondering, aren’t you – how these two are different from one another – no more wondering, here is the answer.
The Difference Between a Trading and a Demat Account
Nature
A trading account acts similarly to a current bank account; in fact, it is linked to both your Demat and your bank account. It operates by withdrawing your shares from your Demat account and selling them in the market. A Demat account is a location where shares and securities purchased from the market are kept.
In contrast to a trading account, which behaves like a current bank account, the Demat account functions like a savings account.
Role
Both of these accounts, as distinct as they are, are critical for any trading in the stock market. When you acquire stock in a company as an investor, you use your trading account to do it. The funds are deducted from your bank account of a bank, and the shares are shown in your Demat account, which is likewise credited.
Similarly, when you sell shares with your trading account, the proceeds are deducted from your Demat account and subsequently sold in the market. This sale’s revenues are credited back to your bank account.
Thus, in order to trade in the stock markets, you must have both a Demat and a trading account.
Conclusion
Now that is a wrap. It is always good to be double-sure about the basics when you start to invest in the stock market. Make sure you have every doubt cleared on the path of getting through to your financial goals. It is always good to have a Demat and a trading account before you can even kickstart your investment journey in the massive stock market – it makes things easier.
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