Having a Demat and Trading account is one of the most crucial aspects of starting your trading and investment journey. However, you must understand the key differences between the two before getting started. But aren’t they similar? No, they are quite different. Newbie investors often make the mistake of thinking that both are the same. This article will help you understand about these two accounts and list some key differences.
What is a Demat Account?
A Demat account is like a digital wallet for your shares. When you change your physical paper shares into electronic form, it’s called dematerialization. Having physical shares can be risky, but storing them in a Demat account is much safer.
Once you create a Demat account from a demat account app like mStock, it’s also called a Dematerialized account. Basically, when you turn your paper shares into electronic ones, it means you have a Demat Account.
What is a Trading Account?
You open trading account to buy and sell shares in the stock market. After you’ve got a Demat Account, you’ll also need a Trading Account, which comes with a special trading number used for trading shares. When you get into trading stocks, you’ll need three accounts: one for your bank, one for your Demat, and one for trading.
Your trading account connects your bank account with your Demat account, allowing you to buy stocks online and trade stocks. Having an online trading account also means you can easily access different stock markets.
Demat Account Vs. Trading Account
- Difference in Use
A Demat account stores securities in digital form, while a trading account deals with buying and selling shares in the stock market.
- Nature
Think of a Demat account like a savings account. It holds money and also lets you keep financial instruments in electronic form. These instruments are added or deducted as needed. On the other hand, a trading account works more like your regular bank account.
- Key Function
The main job of a Demat account is to keep your shares safe, which you use in your trading account to trade stocks.
- Time Measurement
In shares and stock market trading, your Demat account holds onto your shares, like taking a snapshot, usually at the end of each financial year. Meanwhile, your trading account is like a running record of your trading activities over time.
Opening a Demat Account Without Having a Trading Account:
You don’t have to open both a Demat and Trading account if you don’t want to. Depending on your needs, you can have just a Demat Account or just a Trading Account. For example, if you’re only interested in trading futures or options, you don’t need a Demat Account.
But if you’ve applied for shares in an IPO and want to keep them, a Demat Account is enough. However, if you want to sell those shares later, you’ll need a Trading Account. If you’re trading stocks, though, you must have a Demat Account. So, whether you need one account or both depends on what you plan to do with it.
Conclusion:
Before you use trading apps like mStock to begin your investment journey, use the information given in the article to get your basics right. Remember to learn about all the necessary concepts of stock trading before starting in real time.