Clearing the Confusion: Difference Between Demat & Trading Account

Investing in the stock market is a simple process if you thoroughly understand everything and make calculated moves. Right at the beginning of deciding to invest in the stock market, it is integral to have a trading and a demat account.

It is crucial to understand the usage of both these accounts as well as their differences. In this article, we will get into the key differences between demat accounts and trading accounts. 

What is a Demat Account?
The process of converting the physical shares into electronic shares is known as dematerialization. The reason behind the account is to eliminate the risk that comes with the physical storing of the shares. 

Demat account is similar to a savings account with the only difference being that it holds electronic securities instead of money. Several brokers also provide opportunities to open free demat account.

What Is a Trading Account?

After having a demat account, investors and traders must open a trading account to buy and sell shares. The trading account acts as a link between your bank account and your demat account to smoothen the process of buying and selling stocks.

The trading account number provided with the opening of the account is needed for making transactions in the stock market. It is your path to gain access to multiple stock markets.

Difference Between Demat and Trading Account

Let us now study the key differences between the demat and the trading account in online trading:

Functionality

The function of the demat account is to hold securities in an electronic form while a trading account is used for buying and selling securities.

Nature

A demat account is similar to a savings account that holds your securities instead of money. While a trading account is used to facilitate trade in the stock market.

Purpose

The purpose of the demat account is to provide safety for securities in digital format. The main purpose of a trading account is to allow investors and traders to buy and sell securities in the stock market.

Time

Since a Demat account holds the electronic shares, it is measured as a stock at a particular time. As against this, a trading account is a flow statement that reflects the transactions over a specified period.

Fees

A demat account requires annual monthly charges that vary from one provider to the other. Additionally, traders and investors might be required to pay a transaction fee as well. On the other hand, a trading account does not require any such annual or transaction charges.

Conclusion

Demat and trading accounts work in sync with each other and both of them are mandatory if you wish to trade in equity. Before beginning to invest or trade the stock market, having these accounts and understanding their functioning is crucial. Additionally, being aware of their charges allows you to compare different brokers and pick the most suitable one.

To begin your stock market journey smoothly, open an account with Dhan, India’s one of the leading online investment and trading platforms.

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