Thursday, February 2, 2023

Meaning And Differences Between Demat And Trading Account

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Online trading occurs through demat accounts and trading accounts that route trading orders to exchanges for execution. An online trading platform is required to monitor live market prices and place trade orders for financial securities over the stock exchanges. These platforms enable investors to buy, sell, and hold securities. These online trading platform services with the stock brokers are based on demat account and trading account. These accounts have made internet-based trading easily accessible by retail investors. The global online trading platform market is anticipated to expand at a CAGR of 5.1% to $12.16 billion in 2028 from $8.59 billion in 2021. 

Demat Account Meaning 

  • A demat account is an account required to store your financial securities in the screen-based trading system. Whether its shares, bonds, IPO issues, mutual fund units, derivatives, commodities, exchange-traded funds, government securities, or other financial assets in the stock market, a demat account can hold them electronically. You can track and maintain all securities in your demat account effortlessly. The account has eliminated the risk of damage, theft, or forgery involved in the offline trading system based on physical stock exchange grounds. 

Trading Account Meaning 

  • A trading account is a brokerage account required to buy/sell financial demat securities on the stock exchanges. It records the flow of trade transactions the trader made. It is the account that facilitates secured trading transactions, accessing multiple stock exchanges, and providing market research reports by market experts. 

Depository- and SEBI-registered brokers can offer demat and trading account services. SEBI has defined the minimum conditions trading members need to fulfil for online demat and trading services in the interest of the investors. Find a registered discount broker and open your demat and trading account.

Demat Account vs Trading Account

The following points will be helpful in understanding the difference between the demat and trading account

  1. Nature: A demat account is a repository for your financial assets that maintain all those assets’ records. On the other hand, a trading account is the record of the flow of trading transactions you made for your demat securities.
  2. Function: A demat account functions like a bank savings account. A Demat account dematerializes the physical shares in the electronic form. The shares and other financial assets you bought in the stock market are deposited in your demat account, and those you sold are debited. In comparison, a trading account is needed to buy or sell your securities shares. Your trading account links your demat account and your bank account. 
  3. Primary Users: A demat account is a concerned account for long-term or delivery-based traders. The trading account is a primary account in intraday trading. 
  4. Significance: Demat account helps you know where you stand wealth-wise at a time in terms of stock market investments. In other words, it tells you where your investment portfolio value stands. Whereas trading accounts help determine what kind of transactions you have taken in the stock market until now. 
  5. Necessity: A Demat account is necessary if an individual wants to trade in equities or stocks. And if they intend to trade only in future & options, there will be a need for a trading account only. Derivative traders can skip a demat account.
  6. Types of Accounts: Trading accounts can be opened based on the segment you want to trade in, like the commodity market, derivative market or cash segment. Another basis for opening a trading account is the brokerage charge. It can be a flat brokerage with a discount brokerage trading account and per trade value with a full-service broker. Thus, a trading account can be a Discount Brokerage Trading Account, Full-service Trading Account, Equity and Derivatives Trading, or Commodity Trading Account. 

On the other hand, a demat account can be categorized based on the type of investor – Indian or NRI with NRO or NRE account. Another basis is account holding value. It can be a BSDA (basic services demat account) or a regular account. A basic demat account is restricted to a holding value of Rs. 2lakhs; in contrast, there is no restriction for holding value for a regular demat account.

These are the key differences between demat and trading accounts. Start early as early investors are the most successful traders. 

Key Points to invest in the stock market 

  • Have a clear and well-defined investment strategy to stay on the right path.
  • Evaluate your risk appetite and gauge your financial status before you start investing.
  • Based on your financial goals and risk profile, select the best-supported financial assets for your investment horizon. 
  • Extensive research is compulsory about the company you want to invest in. 
  • Learn to be patient and control emotions, like greed and fear, for significant long-term returns.

Conclusion

Both accounts make the online stock trading process more accessible than the earlier offline trading system in India. An individual can trade using the brokers’ online trading systems from any part of the country. Open your online demat and trading account to access the stock market now and grab opportunities to make significant profits with prudent decisions. The process of demat account opening online is simple with eKYC formalities and takes a few minutes to activate your demat account and trading accounts.

Read also: Steps to Pay Income Tax on Fixed Deposit Interest Income

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