Differentiation between Trading and Demat Accounts

The stock market offers a 'n' amount of wealth creation opportunities. It doesn't matter if you are a doctor or engineer, a teacher, a manager, or even a student. No matter what your occupation, investing should be a part of your daily life. While you may believe that you have a good life and are making a lot of money, there is still a need to invest. There may be unexpected expenses, such as a sudden loss, medical emergency or retirement expenses. Without a backup plan, how will you deal with all of these? You should plan your finances according to your goals and needs. What's the next step after you have your plan in place? To start investing in the stock exchange, you will need a demat, trading account and a bank account. To buy and sell shares, your bank account must be linked to the trading account. Let's now discuss the differences between trading and demat accounts.

What are demat and trading accounts?

A demat account, also known as a dematerialized account, is used to store shares in electronic format. The process of converting physical shares to electronic shares is called dematerialization. There are some drawbacks to physical shares, such as the possibility of them being lost, stolen or damaged. The process of transferring shares took a while because it involved a lot paper work. You can easily keep your dematerialized shares safe and secure. The account opening process takes only 15 minutes. You will need your PAN card, AADHAAR and personalized cheque. Also, a white background signature is required.

Are you confused about trading account and demat? Let's now learn more about trading account. Your money is transferred from your bank account to your trading account when you purchase or sell shares. You can only trade in the stock exchange with a trading account.

What is the difference between a trading account and a demat account?

Let's take an example to illustrate this. For Rs. 1000, you can buy shares in ABC company. 1000 at Rs. 100 per share The bank account and trading account are linked, so Rs. When you purchase shares, Rs. 1000 is debited from the trading account. The same amount is credited when you sell them. When you buy shares, they are credited to your trading account. The same amount is debited from your demat when you sell them. The trading account acts as an intermediary bank account to demat account.

When you open a demat account online, simultaneously your trading account too gets opened. You get a user id and password by using which you can begin investing through your trading account. Hope you got the point. Demat account just holds your shares in electronic format whereas to do buy or sell transactions, you need a trading account.