Why Demat And Trading Accounts Are Mandatory for Share Market?

Introduction:

Demat And Trading Accounts, Investing is a method to make money for your future. Investing in the stock or share market is one such investment avenue that may give a boost to your returns if you utilize the opportunity in the right way.The Demat account and the trading account are mandatory for initiating the transactions of buying and selling in the stock market. However, many people got confused between the trading and the Demat account. Both the accounts are important and serve an important purpose while trading in the stock market. Let’s briefly understand both the accounts further in the article.

Meaning of Demat account:

Before we start real-time trading a question always comes to our mind, “What is a Demat account?”. So, we have explained this below and highlighted the importance of a Demat account.

Dematerialization is commonly known as Demat. The Demat account keeps or holds the securities of investors and traders in an electronic or digital format. When the physical share certificates are converted into an electronic or virtual form, the process is known as Dematerialization. Therefore, a Demat account is used for holding the securities and it is important to have a Demat account online for trading in the stock market.

Merits of Demat account:

Demat account eases the process of stock market trading. Some of the benefits of the Demat account are mentioned below:

• A Demat account ensures the safety and security of financial securities used in the stock market for trading
• The account reduces the paperwork and handling of multiple certificates in physical format in one place
• The trader can easily buy and sell a share in an odd lot through a Demat account which was not possible in physical trading
• The transfer of securities is easy and quick and gets completed in a few minutes. In physical trading, it took one month.
• The investor has not to pay any stamp duty charges. The Demat account is cost-effective for trading purposes

Meaning of trading account?

A trading account is required to make the transactions or initiate the trade activities in the share market. It is mandatory to have a trading account for buying and selling stocks in the market. Trading account is most frequently used by intraday traders. Therefore, a trading account is important for making transactions in the share market, it is essential to have one for trading in the stock market.

Merits of Trading Account:

The merits are as follows:

• A trading account provides access to multiple exchanges in a single account. The Multi Commodity Exchange (MCX), National Stock Exchange (NSE), Bombay Stock Exchange are some of the major exchanges in India
• Investors and traders can easily access reliable research work for picking up the right stocks in the market for trading purposes. In the stock market, one may depend on such dedicated research work on every stock and sector if they have a trading account.
• Trading Account provides the best experience in terms of placing orders for securities. The process is online therefore it is quick and seamless
• Trading accounts can be accessed from any device one may perform trade activities from desktop, tablet, laptop, or even from smartphones, etc. This makes the process of online trading flexible and easy.

 Trading Account V/s Demat Account:

 The difference between the Demat account and trading account are mentioned below:

• A Demat account is for holding securities in an electronic format whereas a trading account acts as a connecting link between the bank account and a Demat account to process the transactions of the stock market.
• A Demat account is identified through a unique identity number whereas a trading account will have a unique trading number for doing transactions in the market
• The objective of the Demat account is to keep financial securities of the stock market like shares, mutual funds, etc. whereas the trading account is for performing the share market transactions in the stock market.
• In Demat accounts, annual maintenance charges are essential to pay whereas in trading accounts the service charges are not mandatory.