A Demat account is used to store stocks and share equities that can be traded in the stock market. One key feature of a Demat account is that it can only be used to hold assets that create ownership.
That is futures and options that are usually dealt with in cash and are contract-based, hence creating no ownership, cannot be held in a Demat account. And that is why a trading account is used.
A trading account can be used to hold futures and options without creating ownership.
What is a trading account?
A trading account is an account registered with a brokerage firm that can be used to trade in stock and shares. You can buy and sell stocks on the same day, and even the same session.
A trading account lets you day trade and you can indulge in zero difference trading where you can buy shares and sell them the same day before the market closes.
A trading account lets you trade dynamically within minutes and the profits are gauged on a short-term basis. That is trading often involves frequent buying and selling in small windows of time when the market prices are the most profitable for the trader.
A trading account ensures a seamless trading process where the orders are processed through a unique Id assigned to each trading account.
While trading in non-owned assets can be performed solely with a trading account, you can hold equities only in a Demat account.
You can make do without opening a Demat account if you choose to rematerialise your assets or choose to hold only F&O assets and indulge in cash transactions.
What is a Demat account and how is it different?
A Demat account lets you hold all your equities and shares in one place from where they can be traded using a trading account. If you own any equity shares or stocks in a company, the SEBI guidelines dictate that you have to hold them in a Demat account.
You can also hold owned assets that you are not going to trade soon in a Demat account. So, a Demat account acts as any other bank account but here, you get the option of holding your equities, shares, exchanges, and other assets.
You can link your Demat and trading accounts to sell stocks held in your Demat account and hold the purchased stocks in the same account. A Demat account can be used more efficiently in the long run as you can take your time to buy or sell the assets held in the Demat account.
A Demat account also incurs some maintenance charges annually. A trading account, on the other hand, does not incur such charges.
But certain brokerage charges are charged by the broker firm on every transaction done from a trading or a Demat account.
To conclude, there is just one major difference between a trading and a Demat account and that involves the type of assets which can be held in both accounts.
Demat accounts can hold owned assets while trading accounts let you hold and trade quickly in assets that do not create ownership.
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