If you invest in the stock market or want to invest in the stock market, you essentially need two accounts – Demat and Trading account. In this post, we will tell you about
what is a demat and trading account ?
what are their advantages ?
can you open only a Trading account ?
can you open only a Demat account ?
what is the difference between demat and trading account ?
Few Years ago, if anyone wanted to buy or sell shares, he or his broker was required to be physically present at the stock exchange. So if you wanted to buy shares, you had to go to the exchange with the cash. And if you wanted to sell shares, you had to go to the exchange with your physical share certificates. When the quoted price of the buyer and seller matched, you would pay the seller in cash, and the seller would hand you the physical share certificates. But it was quite a cumbersome process.
SEBI introduced the Demat account to make it easier. So, in this digital age, if you want to buy or sell shares, you can do so right through your mobile or laptop. The cash you used to carry with you to the exchange now lies in your trading account. And the physical share certificates you used to take with you are no longer needed. All those shares are now stored in your Demat account in digital format.
What is Trading account ?
Now let’s talk about the trading account. If you want to transact of any kind, in any security, you need an account called trading account. So if you want to buy or sell shares, you can do so through an account known as trading account. Like, if you want to place an order of 500 shares, you do it through your trading account. Or, if you want to place a sell order of 200 shares, you can do it through your trading account. But to deposit cash in the trading account, you will need your bank account. So, your bank account should be linked with your trading account.
Let’s say you have 1 lakh in your bank account, and you want to do a transaction of 50,000. So, first, you will need to transfer Rs. 50,000 from your bank account to your trading account. Then you can buy any share with that 50,000. So, you can only transact in shares through the trading account. But if you want to receive those shares, you need a Demat account.
What is Demat account ?
A Demat account is like your bank account. Like you store cash in your bank account, a Demat account stores your shares. And each share has a unique ISIN code which you can use to verify the share and its number. Demat account is the short form of the dematerialization account. Dematerialization means to store your physical share certificates in the electronic form.
In India, two organizations maintain Demat accounts. NSDL and CDSL. These are called depositories. If you want to know more about depositories, you can read in details about nsdl and cdls depisitories. in the description. Let’s understand it with a live example.
Let’s say you have1 lakh in your bank account, and you want to buy 10 shares of a company pricing Rs. 10,000. Then, you’ll have to transfer Rs. 10,000 from your bank account to your trading account. After that, you can place the order for those 10 shares. At about the same time, some other person… has to place a sell order of those 10 shares. When the buy order and sell order match, the order gets executed.
Then, Rs. 10,000 is transferred from your trading account to the trading account of the seller. And the shares are transferred from seller’s Demat account to your Demat account. The execution of this whole cycle takes T+2 days T+2 means trading day plus 2 days. So, if you transacted on Monday, you will have the shares delivered to you on Wednesday evening. And the shares will be debited from the seller’s Demat account on Wednesday morning.
In today’s time and age, you can open a trading account as well as a Demat account with any broker. But if you don’t have a trading account or a Demat account with any broker, you can open a trading account or a Demat account with our partner brokers through the link Open demat account .
Many people have the question of whether they can open only the trading account or the Demat account. Yes, you can do that. But it won’t benefit you much. Like, if you opened only the trading account and transacted in shares, where would you get the delivery of shares? So, if you have only the trading account, you can only trade in future and options, which are settled in cash and don’t need a Demat account.
Or, if you want to open only the Demat account, not the trading one… how will you trade shares? If you are buying shares in an IPO allotment and want to sell them as well, you can’t sell without a trading account.
Many people also have the question that since you don’t get the delivery of shares in the intra-day trading, do they still need a Demat account for that? Well, yes. As per SEBI guidelines, if you’re trading in the equity section, it is mandatory to have a Demat account.
I hope you know all about the Demat and Trading account now. If you have still got any questions, please let us know in the comment section. If you know more about the basics of the stock market, check our other articles.