The distinction between a Demat account and a trading platform can be made easily. A Demat account stores stocks and commodities (bonds, ETFs, mutual fund units, etc.) in digital form, whereas a trading account serves as an intermediary to buy and sell shareholdings in the stock exchange. Regardless of their respective functions, Demat and trading accounts collaborate to enable online trading.
The Basic Difference
On the basis of their characteristics their basic differences can be outlined as under:
- A Demat account acts as a vault, or holding place, while a trading account is a transaction platform.
- A trading account allows you to purchase and sell stocks on the stock exchange.
- The Demat account serves as a depository for the electronic assets you purchase.
How do They Work
Presently, you may exchange stocks electronically, which means that when you acquire a stock, you shouldn’t have to bother with storing actual stock certificates; instead, the stocks can be held and exchanged electronically using a Demat account. You do not need to be present on the trading floor to place a buy or sell transaction. Alternatively, you can use your smartphone or computer to access your trading account.
Your Demat account will indicate the stocks and assets you are actually possessing at any moment in time. A trading account will detail the money transfers you made in the stock exchange.
Why Are They Necessary?
The trading procedure is divided into two stages. First, you could use a gateway to purchase and sell stock market assets, and then you will need a holding facility to hold these shareholdings. A Demat account is merely a storehouse, it enables you to accept the deliveries of stocks while dealing in equities delivery and obtaining the allocation of stocks. It doesn’t, though, allow you to trade on the stock market. A trading account is required for this.
The trading account will be connected to the bank account. Funds may be transferred between your bank to your trading account and conversely. You may invest in futures and options if you merely have a trading account as it does not entail accepting possession of stocks Demat and trading accounts serve distinct purposes in the electronic trading transaction. Still, because they are so tightly linked, the whole trade procedure is quick and easy.