Demat vs Trading. What Do You Need To Start Stock Trading?
If you are looking for an investment avenue that can help you grow your wealth, you can consider investing in the stock market. For that, you will have to buy and sell shares from the stock market and make the most of the market opportunities. The Demat account and trading account are two different account types that play a crucial role in the transactions you make in the stock exchange.
They are closely related to each other but are completely different when it comes to the functions they perform.
What is Demat account?
A Demat account is nothing but an online repository which safely stores your shares in dematerialized/digital format. A demat account can help you store shares, bonds, mutual funds, etc’
You can open demat account online by reaching out to a stock broker. You can choose a Stock broker by comparing the brokerage fees, maintenance charges, etc. that it will charge from you in exchange for the depository-related services. Some discount brokers offer you an option to open free demat and trading account along with a flat brokerage rate per transaction.
What is trading account?
A trading account helps place buy and sell order in the stock market. In your trading account you can see live share prices and in-depth detail of shares, their historical prices and charts to analyse its price movements. Your trading account is linked to your bank account. While buying shares from the stock market, the money will be transferred from your bank account to the trading account. Once the shares are bought, they get credited to the Demat account. It’s as simple as that.
In case you want to sell the shares that you had bought previously, the shares that are stored in the digital form get debited from the Demat account and the money will be reflected in your trading account. Youu can transfer the money to your bank account. Therefore, we can say that both these accounts are essential for trading in the stock market. For understanding them better look at the comparative study of Trading account v/s Demat account given below:
Demat account vs. Trading Account
- A trading account is an interface which helps you choose and buy shares. Imagine an e-commerce platform where you can look at the products listed by various sellers and select what to buy. A trading account is somewhat similar, where you look at the shares listed on the stock exchange and select what to buy
- A Demat account is the place where these shares are stored in the digital format. That way, these shares are safe as opposed to having physical certificates that can be lost.
Should I choose a Demat account or Trading account?
A Demat account is crucial if you are interested in investing in equities and intend to hold the shares over a long period. You can use it for depositing and selling shares smoothly but you will still need a trading account to place the buying and selling orders.
On the other hand, you can operate only with a trading account if you are only interested in trading in F&O i.e. future and options segment. Here, you need not store the shares in digital form and therefore, a Demat account will not be required. Moreover, you will not be paying the annual maintenance charges but the broker will charge a brokerage fee and other statutory charges in exchange for the trading services.
However, most of the trading is done online today where shares need to be stored in a digitized form. Therefore, both these accounts are essential for investing smoothly in a stock market.