In the current scenario of e-trading, retail investors utilize online trading platforms for stock trading at the comfort level of the home. An online trading platform is a technology-based program to place trade orders for financial securities through financial intermediaries called stockbrokers. You need to apply for a Demat account along with a trading account with the stockbroker to access an online trading platform.
What is a demat account?
A demat account is an online account that reflects the financial products you own in the stock market. It is safe online storage for all your dematerialized securities in the stock market. The broker will debit your demat account with the securities for a sale transaction and credit it for a buy transaction you made to acquire more securities.
What is the need/use of a demat account?
After the adoption of the online trading system, companies are not permitted to issue paper-based securities. Securities are issued in electronic form. Therefore, a demat account is mandatory as you need it to store your dematerialized securities for further trading. The foremost function of a demat account is to protect your securities. It keeps your financial securities safely and securely as an online storeroom.
Demat account functions and benefits include:
● Quick transfer of shares and securities
It is an online account and takes only one or two days to transfer the securities from seller to buyer or company to investors. For years, trades occurred on trading floors through loud bargaining, which was a hectic and lengthy process. This was before the inception of the demat account
● Conversion and transmission of shares
If you have received shares in the paper form, as an heir or nominee, you need a demat account to convert them in electronic format. The conversion process is known as dematerialization.
● To secure corporate benefits online.
Your demat account accepts automatic credit of benefits arising from corporate benefits like bonus shares, right shares, splits, etc., from the company you have invested in.
● Invest in a single share
Demat account has solved the odd-lot issue. You need not make heavy transactions in the stock market. With a demat account, you buy or sell even a single share.
● Hold and track all your securities in one account.
As an informed investor, you may have diversified your investment portfolio across companies, sectors, or market segments. You need not hold all your securities separately. Just one demat account is enough to store all your securities.
● Get a loan granted against your demat securities.
You can get a loan against the financial securities you hold in your demat account, like money market instruments to meet your financial needs without making a loss due to hurried sale.
What is a Trading Account?
A trading account is an online account required to place buy/sell orders and make transactions electronically. You can trade in any segment using your specific trading account, whether cash or derivative. Make sure you specify your trading style to your stockbroker while you open a trading account online.
A trading account is connected to your bank savings/current account so that your trading transactions can be funded by it. Whenever you buy/sell your securities, it gets credited/debited from your demat account.
What are the needs and benefits of a trading account?
● When investors had to trade on floors, they were unable to create many trades, even after physical presence in the stock exchange. Online trading accounts have made trading convenient and faster. You can place a trade from anywhere through an online trading platform. It is the advanced technology that helps traders to make high-frequency trades.
● You cannot place a trade order for execution in the stock market working with an online trading system without a trading account.
● Your every trade and transaction on an online trading platform is completely safe and secure.
Thus, if differentiate, a demat account is a record of your financial securities, and a trading account, in contrast, is a record of trading flow. Both are necessary for online trading.