Stock Market is the collection of markets and exchanges where people buy, sell and issue shares of publicly-held companies. People invest their money in buying shares in the hope of huge returns. To purchase, hold and sell shares, you need to have a Demat account, a digitally functioning account used to hold dematerialised securities, including stocks, mutual funds, bonds, etc.
Difference between Demat and Trading Account
The fundamental difference between a Demat account and Trading account is that a Demat account holds the shares and securities electronically whereas, a trading account is used for buying and selling shares in the stock market. Both these accounts are necessary for carrying out the process of trading effectively.
What is Demat Account
This account is used for dematerialising your shares by converting your physical shares into an electronic form. The workings of a Demat account are quite similar to that of a bank account where you need to keep your money, and you also have the option of depositing or withdrawing money. Here, your account gets credited with shares instead.
Read in Detail : How to open a Demat account
What is Trading Account
This account is required for conducting your stock trading activities effectively. You are allowed to deal in (buy and sell) shares through your trading account.
Let us find out the differences between a Demat and Trading Account based on multiple parameters:
Functionality- Both the accounts are a product of digitalisation. Nowadays, shares are traded in digital mode to avoid any hassles while dealing with physical bonds and shares. If you open Demat account online, you can be sure of the fact that your details are registered and safe in the records. The shares and securities can be stored and transferred in digital mode with a Demat account. Similarly, you can operate your Trading account from any corner of the country with the help of technology. It enables you to easily buy and sell your shares using a smartphone or a laptop.
Nature- A Demat account shows the shares and securities you own, and a trading account shows the particulars of the transactions you have carried out in the stock market so far. After getting the allotted shares post IPO, the Demat account acts as a repository for holding the shares. However, a trading account is linked to the bank account that enables you to add money from your registered bank account to the trading account and vice versa.
Role in IPO- An investor who wants to apply for IPO must have a Demat Account. On the contrary, individuals who do not want to sell the shares can choose not to have a Trading Account. Having a trading account is not compulsory to apply for an IPO. Moreover, if someone does not have a Demat account but still wants to own a Trading account, he will be able to trade in Future and Options in the derivatives market that does not require the supply of shares.
Identification Number- Your Demat account will have a Unique Demat Number that can be used to identify your account uniquely. On the other hand, the trading account will be assigned a Unique Trading Number that can be used to trade in the stock market.
SEBI’s Approval- It is apparent that for a Demat Account, approval of SEBI and NSDL is mandatory, whereas it is not required for opening a trading account.
Annual Maintenance Charges (AMC)- Apart from brokerage charges, the Demat account needs maintenance charges billed annually. The account holder has to pay for AMC without any fail. On the other hand, for trading accounts, such charges are not paid.