Demat Account vs Trading Account: Key Differences Explained
A demat and trading account serves as the two most important aspects related to stock market investment and trading. While a demat account serves as an online document for storing digitised securities, a trading account helps with buying and selling stocks on the stock market. Users may be aware of how to open a demat account and a trading account, but may be unaware of the difference between the two types of accounts. The following article explores the difference between the two types of accounts and why knowing the difference is essential, especially when considering the distinctions in a Demat Account vs Trading Account.
Demat account
A demat account or dematerialised account serves as an online digital locker that can help investors store their dematerialised securities like shares, bonds, and even mutual funds. Working on the same principle as a bank account, a demat account holds securities in a digital format, making buying and selling of securities easy and hassle-free. Serving as a secure way of storing securities in a digital format, a demat account protects investors from any kind of financial loss and theft. Moreover, to open a demat account, investors have to find a depository participant and complete the necessary online formalities like KYC completion. Understanding the differences in Demat Account vs Trading Account is essential before starting your investment journey.
Trading account
A trading account makes buying and selling of stock market securities possible. Investors can invest in digitised security like shares, mutual funds, ETFs and even bonds using a trading account. Investors can open a trading account, place an order for buy or sell and get hold of the securities when the order executes automatically. Moreover, investors can link their official bank account with the trading accounts to transfer and receive money when buying and selling securities.
Demat account vs trading account
- Purpose
A demat account helps in storing securities and a trading account makes buying and selling securities listed on stock market. - Functionality
A trading account serves as a transaction-based platform. On the other hand, a demat account serves as an online locker. - Type of transactions
A demat account enables investors to hold investments electronically. A trading account makes online trade execution easy and hassle free. - Management
A trading account requires completion of SEBI formalities and demat account is regulated by depositories like NSDL and CDSL.
Difference between trading and demat accounts and its importance
With a clear understanding, users can open a demat account and a trading account for storing and buying and selling securities, respectively. Moreover, being two separate types of accounts managed and regulated by different authorities, investors must be aware of the dedicated step-by-step process of opening and managing them, respectively. Investors can even execute transactions and trades through a trading account and store securities using a demat account if they are aware of their respective features and the key distinctions in Demat Account vs Trading Account.
Conclusion
Demat and trading accounts are essential accounts that investors must open to invest in stock market securities. Investors therefore must be aware of the respective differences between demat account vs trading account and follow the step-by-step process to open a demat and trading account to invest in stock market securities.
