Demat and trading accounts are two sides of the same coin. An online Demat account is where an investor holds his securities and shares. A trading account is a platform that provides the interface to trade shares in the market. To understand the difference between these two accounts clearly, let’s talk about each one of them in detail.
What is a Demat Account?
A Demat account is an electronic system for holding shares. Since physical share certificates are prone to theft and forgery, a Demat account is much more secure and easy to operate. In simpler terms, it is the conversion of share certificates into an electronic format.
What is a Trading Account?
A trading account is a platform where you can buy shares online. When you open a Demat account, you have to open a trading account as well. It comes with a UTN (unique trading number) that is only for your use.
Once you begin buying/selling the shares, this account acts as a bridge between the Demat and the bank account for smooth trading activities. If you open trading account online, it gives you access to several stock markets.
Difference Between Demat & Trading Account
Now that you have a clear understanding of the trading and Demat accounts, these are some of the differences that you’ll find
- Nature: A Demat account functions similarly to your savings account. It holds your financial instruments that are sold or purchased. On the other hand, a trading account is similar to a device that’s used to execute actions.
- Function: The basic function of Demat is to hold every bought or sold security whereas a trading account is used to carry out the transactions.
- Time Management: A Demat account is measured as your stocks at the end of a financial year. A trading account is more of a flow statement and reflects your regular transactions.
Can You Open a Demat Account Without a Trading Account?
Let’s talk about the Demat account first:
- You can easily open a Demat account even if you don’t have a trading one. There are times when the investor simply wants to hold his shares for a long period and not sell them. They do not carry any selling/buying transactions and that’s why a trading account is not compulsory in this case.
- If you want to open a trading account without a Demat one, that is also possible. When you only have one account, you can easily trade with options and futures. Unlike shares, these financial instruments don’t need any delivery.
To make your share transactions smoother, it is better to have both Demat and trading accounts. This is especially the case with traders who invest in shares and actively buy or sell them.
Both accounts work coherently. Since the process seems a little complicated, it is always recommended to consult a broker or financial expert. He can cater to your requirements and give you the best advice for long-term wealth generation.
