In order to conveniently deal with shares in the stock market of the country, it is essential to have a trading account as well as a demat account. While before the 90s, shares were physically sold and bought, sometime during the mid-90s, the purchase and sale of shares shifted to electronic transactions, which made it necessary for share traders to hold a demat and a trading account.
To understand how the share market and trade works, one has to first establish the difference between these two types of accounts-
Nature of use
While shares purchased or meant for sale are stored in demat or dematerialised accounts, their transaction is done through a trading account. Thus, a trading account acts as an arbitrator between the bank and the demat account. The trading account takes shares from the demat account and makes them available for trade at the share market.
Hence, while a demat accounts acts as a savings account, the trading account works as a current account.
Difference in function
Financial instruments, for instance securities as well as shares, are retained by a demat account. A demat account can also convert electronic securities to their physical form. On the other hand, the purchase and sale of such financial instruments is done via the trading account. If one deals with trade in futures and currency only, just a trading account is enough. But if one also trades in stocks both demat and trading account are necessary.
Account fees and charges
While one can open more than one demat account or trading account, a certain fee is charged. In case of demat one needs to pay a yearly maintenance charge for each account he owns. Moreover transaction and custodian fees also have to be paid.
In case of a trading account a certain fee is charged when the account is opened. One incurs no extra costs afterwards.
Process of account opening
A PAN card and a Voter’s ID card have to be submitted so as to own a demat account. But in the case of a trading account, the only pre-requisite is the existence of a demat account.
To make the entire process of stock trading easier, a number of banks offer customers the convenience of managing 3 different types of accounts- demat, trading and a savings account through one single bank account. Therefore, when opening a trading and demat account check if the bank is offering this type of service. It will definitely make purchase and sale of shares more simple and convenient.