India has recorded increasing retail investor participation in the emerging stock market. National Stock Exchange (NSE) has become the number#1 derivative exchange worldwide for the third consecutive year with 20 years of derivative trading. More and more individuals entered the market to be benefitted from viable stock trading opportunities as demat and trading accounts have made the online trading process convenient. Another important reason has been the uncertain income due to ongoing pandemic-driven restrictions and job losses. However, retail investing had been on the rise even before the pandemic. Now, opportunities have increased with the rising graph of economic activities and start-up bugs in India during the recovery period.
Online demat and trading accounts are mandatory for online stock trading or Free automated trading app. Every market participant must know the exact working system of the two accounts. Here is the guide to understanding how these demat and trading accounts differ with the elaboration on their working systems.
Online Trading Account and Its Working System
The primary function of an online trading account is to place online trades to buy/sell dematerialised securities. You can buy shares, commodities, futures and options, corporate bonds, government securities, mutual fund units, exchange-traded funds, and other securities.
- A trading account allows you to access multiple stock exchanges, including National Stock Exchange (NSE), Bombay Stock Exchange (BSE), Multi Commodity Exchange (MCX), etc., and let you buy or sell financial securities at the relevant stock exchange.
- Your trading account connects your online demat account and bank savings account. It helps fund your buy trades and receive booked profits on your trades.
- Your trading account based trading platform leverages technology and allows traders to make high-frequency trades.
Online Demat Account and its Working System
An online demat account is a repository for all the financial assets you hold in the stock market. Whether it is equity, mutual fund, derivatives or other money market securities, it can hold all your securities safely. The main function of demat accounts is to store your dematerialised securities.
- You need not own shares or other securities to create an online demat account.
- Investors are allowed to create multiple demat accounts with different stock brokers if they need to.
- Your demat account reflects all the financial assets you hold in the stock market. Your demat account gets credited with the securities you buy and debited with securities you sell through your online trading account.
- Demat account has eliminated cumbersome paperwork involved in trading physical securities.
- It helps you to maintain securities in the demat account effortlessly.
You must have understood both accounts. Let us move to the differentiating points of these accounts.
Both accounts differ in functions and possess different account ID numbers. The following are the other differentiating factors of both accounts.
- A demat account is the main account for long term investors. In contrast, a trading account is the main account of short term traders like intraday traders as they need to place orders frequently. It is a necessary account for derivatives traders, especially to deal in the cash segment.
- A trading account is mandatory to complete transactions electronically to buy or sell dematerialised financial assets. On the other hand, your demat account is mandatory to hold your dematerialised financial assets safely.
- Trading is the record of trading transactions you made. On the other hand, a demat account is a record of all those electronic securities that you own.
- A trading account ensures a secured trading transaction, and the demat account ensures the safety of the securities it holds.
- Annual maintenance charges are the main charges involved in the demat account services, whereas brokerage is the main charge associated with the trading accounts.
This is all about online demat and trading accounts that every investor should understand. Online trading has recorded massive growth, courtesy young investors. You can start your investing journey with a discount broker to save on demat and trading service charges.