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What Is the Difference Between Demat and Trading Accounts?

What Is the Difference Between Demat and Trading Accounts?

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Category : demat account

A trading account is used to place buy or sell orders in the stock market. The demat account is used as a bank where shares bought are deposited in, and where shares sold are taken from. Trading account with Libord Broking helps you trade seamlessly in the stock market.

Example (Trading account meaning and procedure)

You have Rs.1000 in your wallet. You go to a shop and tell the seller that you want a packet of chips, you check the price, and finalize the transaction. Then, you take the money out of your wallet and give it to the seller. In this case, the wallet acts as the demat account, while you act as the trading account.

Differences as per the Compliance

To open a demat account or even a trading account, you need to approach a SEBI approved broker and a Depository Participant (broker) registered with the NSDL or CDSL. In case of a trading account, such approvals are not required. But the number of demat or trading accounts that a person can possess is not limited - although there is no point in having multiple accounts. In fact, you cannot have more than one trading account with a brokerage since the accounts are uniquely linked to PAN cards.

Every DP has their own set brokerage charges. You should check all the charges and compliance certificates usually displayed on their website.

Functional Differences

The main function of a dematerialized account is that of securities storage, but it also performs the function of re-materialization, that is the conversion of the shares from electronic to physical form. The task of selling and buying the stocks is the responsibility of the trading member, under the instructions of the client or by the client themselves. If a trader wants to trade in, say currency, only a trading account is required; but if a trader wishes to trade in stocks, both accounts are mandatory.

What is Demat Account and Trading Account

Demat Account:

A Demat account is also known as Dematerialized account. In other words, converting or dematerializing your physical shares in the electronic format is known as holding a Demat Account.

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 differentiates 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 stock broker 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.

Importance of Demat & Trading Account:

Once you want to start trading in share markets, you require having three accounts: A bank account, a Demat Account and a Trading Account. Let us understand this with an example. Ashok wants to purchase shares of a particular company. He will place an order through his Trading Account, following which the transaction will be processed in the given stock exchange. The shares will then be deposited in his Demat Account, while the requisite money will be deducted from his bank account.

So, to put it simply, a Trading Account acts as a link between your bank account and Demat Account, allowing you to trade in stock markets.

Having an online Trading Account helps you to secure access to multiple stock markets like National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and Multi Commodity Exchange (MCX).

 

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