There is hardly a question will arise in the mind of a new investor and also many other investors that, Is there any difference between the Trading account and Demat account? Before proceeding further everyone keeps in mind that trading account is the central point where the buy or sell activity takes place whereas demat account is a trading system facility.
Let’s take a look, consider you have money in your wallet. And you want to buy one packet of bread. Then you go to the shop and demand the seller one packet of bread, He provides it to you and you check the price details, and finalize your deal. Then, you take money from your wallet and give it to the seller. Here, in this example you are the trading account and your wallet is the demat account.
For online transactions in trade market, first you have to register with stock-exchange. For this, you can open an account with Brokers who trade on your behalf in the stock market. All the investment of a particular investor is listed in this account .This is the trading account. So this trading account acts as a platform for your buying or selling process. This account connects to the stock-exchange from where you can buy/sell. So as its name suggest a trading account is a trading platform where your buy/sell taking place. Whereas, demat account provides electronic share and security holding facility. Shares are bought and held in demat account while online trading and this provides easy trade to users. Actually demat account is a store room. Where you can store the investment details that one makes in shares, government securities, exchange traded funds, bonds and mutual funds. Like a bank locker, in your demat account you can keep all your valuables in electronic format.
According to SEBI act 1996, Demat account is a must for equity investors, by using demat account you can hold all your investment electronically. So that the physical securities and associated documentation can be eliminated. So the demat account reduces the paperwork and thus the entire transaction become fast. Physical copies associated with so many risk such as physical damage ,misplaced or lost ,and may get torn all these can be avoided by opening a demat account and the dangers like fake securities, incomplete paperwork or bad deliveries can also be avoided. Cost can also be reduced by using a demat account, the expenses like stamp duty, handling charges etc.
When you open a trading account first your fund transfer from your bank account to trading account and when you buy shares an equal amount of money will be deducted from your trading account also when you sell those shares an equal amount of money will be added to your account. Likewise in a demat account whenever you buy stocks that will be added to your account and when you sell stocks that will be taken away from your demat account .Actually trading account act as a link between demat account and bank account. Now a day’s banks offer 3-in-1 accounts in that account you will get all the three benefits from your broker. Account opening cost and fees will be higher than one who offers only Trading and Demat Account. However, if you are looking for convenience, then you can go for it.