Why Do We Need A Demat Account And What Is A Trading Account?

A trading account with a reliable and credible broker can help you to trade on various domestic and international exchanges. We can use a Demat account to bank shares and various other instruments.

Overall, a demat and trading account go hand-in-hand as a precursor to any market investment. 

Basic Differences Between Demat and Trading Accounts

Understanding the differences will help an investor know when to use which and how to track them. The demat is your holding account. 

By contrast, a trading account requires buying and selling various assets, such as stocks, bonds, mutual funds, and government securities. So, while both demat accounts and trading accounts look similar, beginners need to understand what makes them different.

Need for Demat Account

A demat account is useful for storing various instruments such as shares, bonds, government bonds, mutual funds, ETFs and others. in an electronic form.It holds the identity of securities mapped to you like a bank account for money. It allows trading or holding shares on a delivery basis. 

• Demat accounts eliminate the risk of  loss, theft, damage, forgery and misplacement of physical stocks. The brokers and custodian members regulate demat accounts and trading accounts in accordance with the regulations prescribed by the Securities and Exchange Board of India(SEBI).
• One of the biggest advantages is the electronic format makes the entire process of trading, investing, holding and supervising securities simpler, more cost-effective and more convenient.
• Customers also benefit from the nomination option when they open a demat account.

Customers holding a demat account must open a trading account to execute in the stock exchanges.

Demat accounts can contain a variety of investments such as shares, bonds, bonds, government bonds, exchange traded funds (ETFs) and investment funds. Demat accounts eliminate the risk associated with holding your shares and allow you to trade smoothly. You can buy shares from your trading or bank account and debit your Demat account without any credit or personal commitment.

Need for Trading Account

To make the transaction seamless and convenient, both trading accounts and demat accounts are required. The procedure for opening a trading account is not significantly different from the procedure for opening a demat account mentioned above.

• A trading account is sufficient if you trade futures or options that do not require delivery of shares. A demat account is a repository for your financial security, but not enough for trading.
• A trading account acts as a go-between demat accounts and bank accounts to make trading a smooth experience. 
• Another difference in the nature of these accounts is that a demat account works differently from a savings account. While a savings account receives the debit and credit of money, a demat account enables you to store financial instruments in the dematerialised electronic form.. A trading account actually enables the transaction between exchanges and brokers.
• Similar to multiple Demat accounts, multiple trading accounts are allowed for investors.
• A trading account provides you with funds to buy shares and reflects the profits you make from each trade. A debit trading account is a place where we can store and withdraw our money to buy shares.

In contrast, a Demat account is a place where our physical certificates are kept. In summary, a trading account needs to store money, while a demat account needs a deal to buy shares in a security. If an investor wants to hold shares for the long term but does not intend to sell them for the short term, he should open a demat account to store the shares.

Also read:- Futures trading: Definition, history, trading techniques, Pros and Cons