What is the Difference Between a demat and a trading account? Hi all, today I am going to write about the Demat and trading accounts. One day I went to my best friend’s home, and his father is very interested in the stock market.
He asked me some questions regarding the stock market, and apart from the discussion, he didn’t know the difference between the Demat and trading accounts. He argued with me that both accounts were the same, and I explained clearly the distinction between the Demat and trading accounts.
I decided to write an article about the Demat and trading accounts because most of the market participants don’t know the difference. Most of the people who are interested in entering the stock market know that it is necessary to have both accounts in India.
Many of them don’t know that my uncle considers both accounts to be the same, but in reality, both are different from one another and have different purposes.
Difference between Demat and trading account
Trading account
In a simple way, if we purchase jewelry, goods, furniture, etc., it is called trade, and if we buy anything from a shopkeeper, it is called trade; actually, we trade with him, so like in the stock market, trading is concerned with shares.
A trading account is only for buying and selling shares, and it is a medium for both buying and selling in the market. In the market, we only buy and sell shares. Without the trading account, we can’t buy and sell a share.
Demat account
I said above that the purpose of a trading account is to buy and sell a share, and if we have to hold the share for one day or after one year, a demat account is required. Basically, a demat account is for holding the shares in the long and short term.
If you buy 100 shares in the stock market (of any company) and want to hold them for one day, you need a demat account. Demat account means the Dematerialized account, which holds the shares in electronic document form Demat is similar to a bank account to keep the shares. It is used only for storing the shares.
Example for understanding purpose
Let’s assume you wish to buy 10 shares of Reliance Industries. Here, the steps and process followed will be as follows You wish to buy the Reliance Industry shares. First, you must have the required money in your savings account. Transfer the money from your savings account to your trading account.
Buy the stocks of that company using a trading account and place an order to buy those stocks using a trading account. If the market identifies the seller and matches the order, money will be transferred to the seller’s trading account and the shares will be credited to your demat account.
Now lets you assume after few days you want to sell the half
of the stocks ( 5 stocks of reliance industry) let’s follow the procedure will
be followed:
First, you place a sell order in the market using a trading account, And the market finds the buyer and matches both orders of buyer and seller If the buyer is found, then the shares in your demat account will be debited from your demat account.
The money will be credited to your trading account, and the shares will be deducted. The trading account provides a platform to buy and sell the shares, and the demat account provides storage of shares. The trading account is a medium for saving, and the demat account also stores bonds and mutual funds. Before the 1990s, there was no demat account; the shares were stored in paper and document form only.
After the boom of the internet, the shares were stored in electronic form. If you open a trading account, it will take 5 minutes to 3 days to open a trading account, according to the broker If you open the demat account, it will take 7 to 10 days.
There is no maintenance charge for the trading account; we only have to pay the demat account’s annual maintenance charge, which is Rs 300 to Rs 1000 based on the broker and an additional brokerage charge will be applicable to buy and sell the shares.
That’s it. It’s over I hope you all understand the difference between trading and demat accounts. Happy learning