We often come across new investors who are very much eager to start stock investments. However, most often these novice investors are unaware of the meaning of Demat Account and Trading Account and the difference between the two. Not only new investors, even many of experienced players are ignorant about the difference between the demat account and trading account. So with this blog, we will make you understand the meaning and the difference betweenDemat account and Trading account.
Before you begin actual trading in the stock market, two of the essential requirements are having a demat account and a trading account.Let us see the key differences between demat account and trading account.
Demat Account Vs. Trading Account
Demat Account is the short name for ‘Dematerialised account’. It is like a bank account which stores the account holder’s shares and securities in an electronic form. In other words, it is a facility where stocks bought are deposited and the stocks sold are withdrawn.
It is the Trading Account through which the account holder buys and sells shares and securities in a stock market. It is used to place an order for trading in the stock market. The trading account acts as an intermediary between the demat account and the bank account.
The main purpose of thedemat account is to hold securities. It is not used for transaction purposes. The demat account acts as a bank in which the securities bought are deposited and the securities which are sold are withdrawn.
While in case of atrading account, the primary purpose is the transaction of securities. It is used for the placement of order, for buying and selling in the secondary market.
For opening a demat account, it is mandatory to get prior approval of SEBI (Securities Exchange Board of India)and NSDL(National Securities Depositories Limited).
While in case of opening a trading account, none of the approvals are required.
Owing to this reason, the process of account opening takes less time for trading account than a demat account. Opening a trading account takes 3 days, whereas opening a demat account takes around 7 to 10 days.
While opening a demat account, the account holder is required to pay Annual Maintenance Charges (AMC)depending on where you open your account. It is typically around Rs. 400.You have to pay AMC for every demat account that you hold, which means you can hold more than one demat account using your PAN Card. Also, you need to pay the custodian fee, account opening fee and transaction fee.
On the other hand, opening a trading account does not require you to pay any AMC charges. All you have to pay is the initial cost of opening a trading account.
- Suitable For
A Demat account is appropriate for those investors who invest their money in the financial market and hold securities in dematerialised form.
On the other hand, a Trading account is suitable for traders who transact in the derivative segment such as currency futures and options, commodities, index, etc. and for those who transact in the cash segment.
- Prerequisites for Account Opening
In order to open a demat account,a valid identity proof as well as address proofare required to be furnished. Various documents like PAN card, voter ID card, Aadhar card, driving license, passport, etc. serve as valid documentary proof.
In contrast, to open a trading account, the only prerequisite is the possession of a demat account. No documentary proofs are required to open a trading account.
- Number of Accounts
One can open multiple demat accounts with one Depository Participant popularly known as DP. Whereas, in case of trading Account only one account can be opened with one stockbroker.
The above points highlight the key differences between a demat account and a trading account. We hope that the post is useful to our readers.
Indira Securities is a renowned stock broker operating since 1987. We have a strong client base and for we endeavour to serve the best to our clients. You can open a demat account and trading account with us and we will ensure quality services to you at thelowest price. So open your demat and trading account now with Indira Securities!
Note: ‘Investment in securities market are subject to market risks, read all the related documents carefully before investing.’