![For stock market investments, the two accounts are linked to each other. (Representative image) For stock market investments, the two accounts are linked to each other. (Representative image)](https://images.news18.com/ibnlive/uploads/2021/07/1627283897_news18_logo-1200x800.jpg?impolicy=website&width=510&height=383)
For stock market investments, the two accounts are linked to each other. (Representative image)
Typically, brokers in India offer a combination of Demat and trading accounts for a smooth trading experience.
When starting your journey to building wealth through the stock market, it is important to know the basic tools, including trading accounts and demat accounts. Trading accounts and Demat accounts are different but they work closely together when it comes to stock market trading.
These accounts simplify the process of buying, selling and holding securities in the Indian stock market. Whether you're looking at a promising tech startup or a stalwart blue chip company, understanding how trading and Demat accounts work is important to making informed investment decisions.
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Here are the differences and roles of each:
What is a trading account?
Think of this as your gateway to the stock market. A trading account allows you to buy and sell securities such as stocks, bonds, and derivatives. To invest in a company's shares, you use your trading account to place an order. Once the order is executed, the shares will be credited to your demat account.
What is Demat Account?
This account, short for “dematerialized account,” acts as a digital vault for your securities. Instead of dealing with physical share certificates, Demat accounts store your investments in electronic format. When you purchase stocks through your trading account, those stocks are deposited into your Demat account. Similarly, when you sell shares, those shares are withdrawn from your Demat account.
trading account
- Purpose: A trading account is used to place buy or sell orders in the stock market. It acts as an interface between investors and the stock exchange.
- What it does: When you want to buy stocks, you use your trading account to place an order. Once the transaction is executed, the purchased shares will be credited to your demat account. Similarly, when you sell stocks, you place an order through your trading account and the stocks are withdrawn from your Demat account.
- Brokerage: You should open a trading account with a stock broker who facilitates trading on the stock exchange for a fee or commission.
Demat account
- Purpose: Demat (Dematerialization) Account is used to hold securities and shares in electronic format. No actual shared certificate required.
- Function: Serves as a custodian for your securities. When you purchase stocks, those stocks are saved in your Demat account. When you sell shares, those shares are transferred from your demat account to the buyer's demat account.
- Maintenance: You need to open a demat account with a depository participant (DP), which can be a bank, financial institution or a stockbroker registered with a depository (e.g. NSDL or CDSL).
function:
Trading Account: Used to place orders to buy or sell securities.
Demat Account: It is used to hold and maintain securities in electronic format.
usage:
Trading: Required to execute trades in the stock market.
Demat: Required to store stocks and securities you own.
work:
Transaction: Directly involved in the buying and selling process.
Demat: Reflects holdings and changes made after a transaction is executed through a trading account.
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For stock market investments, the two accounts are linked to each other. Typically, you need both accounts to trade and hold stocks.
- Buy stocks: Place your order through your trading account. -> The shares will be credited to your demat account.
- Sell stocks: Place an order through your trading account. -> The shares will be withdrawn from your demat account.
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Let's say you want to buy 100 shares of a company:
- Trading Account: Log in to your trading account and order 100 shares.
- Demat Account: After your order is executed, 100 shares will be transferred electronically and stored in your Demat account.
Although trading accounts and demat accounts are used for different purposes, both are essential for trading and holding securities in the Indian stock market.
disclaimer: The expert views and investment tips contained in this News18.com report are the opinions of experts and not the opinions of the website or its management. Readers are advised to check with certified professionals before making any investment decisions.