What is the Difference Between Demat Account vs Trading Account

 

Difference between demat and trading account

 

Both demat and trading accounts are necessary to trade in stocks. However, they are quite different. Here is an example to help you identify the difference.

Imagine you want to buy a carton of milk from a dairy store.
You pick the carton of milk and go to the billing counter. Here, you remove a specific sum of money from your wallet to pay the cashier.


In this example, the money stored in your wallet is similar to stocks stored in your demat account. Removing money from your wallet to pay the cashier is like trading. For this transaction to occur, you need to have a trading account.

As an investor, you need a demat account to deposit and hold your stocks when you purchase them. Think of your demat account as a savings bank account for your shares. You can deposit and remove stocks from your demat account whenever you like; just as you deposit and withdraw money from your bank account as per your convenience.

In comparison, you need a trading account to place ‘buy’ and ‘sell’ orders in the market. It is a requisite to conduct any transactions in the stock market. You can register with any online stockbroking firm to create an online trading account. When you register, you are provided with a unique ID that allows you to trade in the market.

 

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