Demat accounts are also known as dematerialised accounts. In the dematerialisation process, the physical shares are converted into electronic shares. The account provides easy storage of shares without the risk associated with physical shares. An electronic demat account is what you get when you convert your physical shares into an electronic format.
In stock markets, trading account meaning refers to an account that is used for buying and selling shares. As soon as you have a Demat Account, you need a Trading Account, which has a unique trading number. To trade shares, you need three accounts: a bank account, a demat and trading account. The Trading Account is a link between your bank account and your Demat account. You can access multiple stock markets by having an online trading account.
The stock market would work differently before digitisation. Thousands of people would be screaming and shouting to place their orders. However, those methods have been replaced by digitisation, which makes everything available online.
From the comfort of your home and with just a few clicks, you can order and store securities in your Demat account. Using a trading account, you can trade other financial instruments like Futures, Options, and ETFs.
When a company lists on the stock market, its shares become available for trading on the stock exchange. Earlier, the exchange had an open-outcry system. In the mid-90s, the stock exchanges adopted the electronic system. This means, all trades were conducted electronically. Simply put, you didn’t have to go to the counter and place an order physically. You could do it through a computer, which would verify the details, the market price, and process the trade.
For this reason, you need a special account through which you can conduct transactions. This is called the trading account. Without one, you cannot trade in the stock markets. You register for an online trading account with a stock broker or a firm. Each account comes with a unique trading ID, which is used for conducting transactions. Also, each broker offers different trading account features. Read more about features of trading by Kotak Securities.
As a beginner investor, you need to know the difference between demat and trading account since they are crucial for trading stocks in India. Below is a table highlighting the difference between demat and trading account:
A Demat account is an electronic account that investors can use to store shares and other securities.
A trading account is a digital account where investors can purchase and sell shares and other securities.
Demat accounts are primarily used to protect securities from theft, loss, and damage by storing them electronically.
Trading accounts facilitate the placement of buy and sell orders on exchanges.
A depository participates in issuing demat accounts through a Depository Participant (DP).
A SEBI-registered stock broker provides a trading account.
For easy identification, each demat account has a unique 16-digit number.
There is a unique ID or number assigned to each trading account, depending on the stockbroker.
Account Maintenance Charges (AMCs) and transaction fees are among the charges associated with demat accounts.
Most stockbrokers do not charge fees for trading accounts. However, for trades executed through this account, a brokerage fee will be charged.
|Basis||Demat Account||Trading Account|
|Meaning||A Demat account is an electronic account that investors can use to store shares and other securities.||A trading account is a digital account where investors can purchase and sell shares and other securities.|
|Role||Demat accounts are primarily used to protect securities from theft, loss, and damage by storing them electronically.||Trading accounts facilitate the placement of buy and sell orders on exchanges.|
|Issuing Entity||A depository participates in issuing demat accounts through a Depository Participant (DP).||A SEBI-registered stock broker provides a trading account.|
|Unique Identifier||For easy identification, each demat account has a unique 16-digit number.||There is a unique ID or number assigned to each trading account, depending on the stockbroker.|
|Charges||Account Maintenance Charges (AMCs) and transaction fees are among the charges associated with demat accounts.||Most stockbrokers do not charge fees for trading accounts. However, for trades executed through this account, a brokerage fee will be charged.|
The following fees and charges are associated with opening a Demat and trading account:
Demat And Trading Account Opening Charges Depending on the broker, the opening charges for Demat and Trading accounts vary. Considering that both are offered together, there is no separate charge for Demat and Trading accounts. Moreover, some brokers offer free trading and Demat accounts.
Annual Maintenance Charge It is a recurring fee for maintaining your demat account. Depending on the Depository Participant, the amount may vary.
Brokerage Charges Stockbrokers charge brokerage fees on the buy and sell transactions you make on the stock market. The fee can be determined based on the transacted value, or it can be a flat fee per order.
Dematerialisation And Rematerialisation Charges Share certificates that are converted from physical to electronic form are subject to conversion charges.
Off-Market Transfer These charges apply when you move shares from one Demat account to another without involving a stock exchange. This feature allows users to gift stocks to their friends and family members.
Custodian Fees Depending on the number of shares held in the Demat account, these charges are levied monthly. For each ISIN, the standard charge ranges from Rs. 0.5 to Rs. 1. Custodian fees are generally not charged by the DPs since most companies pay them a one-time fee.
Just like the demat account, a trading account is a must for investing in the stock market . This is because to trade in the stock markets, you need to be registered with the stock exchange. Stock brokers are registered members of the exchanges. They traditionally conduct trades on your behalf.
Most often, stock broking firms have thousands of clients. It is not feasible to take physical orders from every client on time. So, to make this process seamless, it is advisable to open an online trading account. Using this trading account, you can place buy or sell orders either online or phone, which will automatically be directed to the exchange through the stock broker.
Step 1: Link your trading and demat accounts. This way you won’t have to keep supplying your demat account details for every transaction.
Step 2: Place an order through your online trading account. This could be a market order, a limit or buy order, or an after-market order. If your brokerage allows you to place orders through the phone, then you will need to supply your trading account details.
Step 3: The exchange will process your order. It will verify the details of the transaction, the market price, the availability of the shares in the market, and so on. It will also check the details of your demat account that is linked to your trading account. This is especially so in case of a sell order.
Step 4: Once the order is processed, the shares will be either deposited in or debited from your demat account.
Can You Transfer Shares Using Demat Account?
Do try to submit that DIS when the market is on. Then, the date of submission of DIS and date of execution of DIS would be the same. Otherwise, there may be a delay. You may also need to pay the broker some charges for the transfer.
There's a connection between the trading and demat accounts. You need both of these accounts to trade. Also, when selecting a broker for a demat account, ensure it meets your investment needs. Investments and trading in the stock market involve Demat, Trading, and bank account. Without a Demat and Trading account, stock market investing cannot be done digitally. A Demat account stores your stocks safely, and a trading account facilitates transactions. Although these are two separate accounts with different purposes, an investor won't have to go through two separate processes since the integration, enabled by technology, makes the process seamless. Additionally, consider all the fees and charges associated with demat and trading accounts.
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Anyone (Minor or adult) can open a demat and trading account. All you need to do is submit your PAN card, government ID, and address proof and fill out a KYC form. After that, your broker will verify and implement the process of opening an account. Once the process is completed, a client ID is created that can be used for future transactions.
Yes, in one demat account, you can hold multiple securities.
Yes, the transfer of shares from one demat account to another is possible.
No, an investor cannot open a joint demat account to a trading account. Only one name is used to open a trading account. This also means that each trading account is associated with the unique PAN number of the investor.
You can know the trading account number in the following ways:
Trading accounts are investment accounts. Most commonly, it refers to an account used for trading securities. A stockbroker provides the account and allows you to buy or sell securities.
It is an account that is used to place buy or sell orders on the Indian stock market.
The difference between a demat and a trading account is that demat accounts hold shares and securities (bonds, ETFs, mutual fund units, etc.) electronically. Whereas a trading account facilitates share purchases and sales.
Yes. The gain you earn from the sale of shares, bonds, debentures, mutual funds, etc, within one year of your purchase is considered short-term capital gain. Under the Income Tax Act, this is subject to a flat 15% securities transaction tax (STT).
Both adults and minors are eligible to open trading accounts.
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