Investment is something most individuals think about at one point in their life or another. Over the years, the process of investment has significantly improved especially with the arrival of the Demat Account. However, there are still people for whom the concept of Demat Account is not clear enough. The Demat Account is often confused with the trading account and vice versa, It is, therefore, important, for those who are aspiring to be an investor to know the difference between Demat and trading account.
From the basic definition to their nature and functionalities the difference between DematDemat and trading account is stark. Without further ado, let us start with the definition of the two accounts.
Definition Of Demat Account And Trading Account
A Demat Account is a digital account where an investor’s stocks are stored in the electronic form. The Demat Account uses the dematerialization technology which converts your physical share certificates into the digital format.
The trading account is used to purchase or sell shares in the stock market. It is important to have a Demat Account to trade in the share market. However, trading in the stock market is not possible with only the Demat Account. You will need to have a trading account for that.
Trading account is needed for the transaction of shares.
So, as far as the definitions are concerned, the difference between Demat and trading account also point out their interdependence on each other for the investment process to be carried out from beginning to end.
Major Differences Between Demat And Trading Account
The difference between Demat and trading account are as given below:
- A Demat Account is used to keep your stocks stored in your account. It in itself does not allow you to trade in the share market. The trading account, on the other hand, is used to facilitate the purchase and sell of shares in the stock market. Just as you cannot trade through the Demat Account likewise you cannot store your shares in the trading account. Demat Account will be needed for that.
- Another difference between Demat and trading account is that the Demat account functions like a savings account and the trading account as the current account. The only difference here is that while savings and current account deal with money, Demat and trading account deal with stocks.
- As the Demat account keeps the stocks, it is measured over a specific period. Usually, this period is 31st march which is the end of the financial year. The trading account, on the other hand, is a flow statement and thus gets measured over some time.
How To Open Demat Account
To open a Demat Account, you have to undergo the following steps:
- Select a Depository Participant. A Depository Participant or DP is an agent who maintains the Demat account as an investor. The DP acts as a link between you and the depository you are going to open an account in. Hence, choosing the right DP is the first thing you have to figure out for opening the Demat Account.
- Once a DP has been chosen, you will be required to fill the application form. This step is largely concerned with the paperwork. Therefore, you will be required to submit relevant documents pertaining to your identity and address proof.
- An agreement will be provided to you stipulating the terms and conditions, rules and regulations and other such important factors. Since you will have to sign the agreement, it is important that you first read it carefully before signing it. Also, make sure to ask for a copy of the agreement to keep it with you.
- Once the above-mentioned steps are completed successfully, your Demat Account will be opened. A Beneficial Owner Identification Number (BO-ID) will be given to you. The BO-ID is required to access your Demat Account.
How To Open Trading Account
The account opening process for a trading account is not much different from that of the Demat Account.
- You are required to choose a broker or firm. To make the right decision, compare the charges brokers take and the service they provide. This will help you in making the right decision.
- Filling the account opening form is the next step you have to follow. You will have to submit the necessary documents for KYC.
- A verification process will be carried out once your application is submitted.
- Once the verification process is completed, you will receive all the details regarding your trading account.
- Your trading account is finally ready for you.
Once you have figured out the difference between Demat and trading account in these aspects, it will give you a clearer idea of how to use both accounts effectively. Whether it is the Demat Account or trading account, you are going to need both of them for investment. But it is important to keep in mind that a trading account cannot be opened without a Demat Account if equities are to be traded. So, always go for the Demat Account first.