Any Indian who intends to buy or sell shares requires two accounts. These are: the demat account, and the trading account. Neophytes often confuse them, since both accounts are necessary for all activities on the market. However, the accounts serve different purposes. Knowing this enables you to enter orders the right way and maintain clarity in your investment decisions. Here is an explanation of demat and trading accounts along with why both are important when indulging in investing and trading. It also connects those with the easy way to do intraday trading for people in their beginners’ stages.
What Is a Demat Account?
A Demat account is for dematerialization of shares. Shares are credited into your demat account upon delivery purchase. Shares sold under delivery are debited out of the demat account. Thus, a demat account is just a storage account-it neither buys nor sells. It only serves to protect the interest of shares and offers easy and ready access to them.
What Is a Trading Account?
Any share purchase or sale orders are made through the trading account. This is your broker’s use of the stock exchange. The order to buy stock must be placed through the trading account. Selling works the same way: the selling transaction is handled by the trading account. In short, a trading account has no onboard storage of the goods; it merely executes the transaction.
Demat Account vs Trading Account
- Your shares are stored in an account known as the demat account.
- Your orders are executed by the trading account.
- Both are necessary for delivery investment.
In intraday trading, the demat account is never used since no shares are stored. Understanding the above makes crystal clear why both accounts are necessary for seamless market activity.
Why You Need Accounts
Via a trading account, you can only place buy or sell orders; it does not hold shares for delivery. A demat account, on the other hand, stores your shares electronically but cannot execute trades. This highlights the difference between demat and trading account. When you buy shares, the trading account executes the order, and the demat account safely holds them. When you sell, the trading account processes the sale, and the shares are deducted from the demat account.
Without both accounts, there is no possibility to complete the entire cycle of buying, keeping, and selling.
How They Function in Delivery Trades
Delivery trades involve holding shares for days, weeks, or even months. In doing so: You buy shares through the trading account. The shares then move into your demat account. You hold your shares for the time you wish. Upon selling, the shares move out of your demat account. This procedure emphasizes long-time investing and ownership.
How They Function in Intraday Trades
Intraday trades involve buying and selling on the same day, with no delivery of shares taken. Therefore, under this situation, the demat account is simply not used. Now, to have an understanding of how to do intraday trading, here it goes:
- You buy shares through the trading account.
- You sell them before market hours close.
- No shares enter or exit your demat account.
The trading account does all the work; the demat account is left idle since no delivery occurs.
Reasons Why the Difference is Important
Having good knowledge aids usually in keeping one clear of mistakes. What many beginners think is that both accounts perform the same function. This confusion causes a lot of problems while placing orders or checking one’s holdings. The next thing knowing the difference does is to guide you to a particular type of order based on delivery investing or intraday trading.
Maintenance Fees
Separate charges may apply to both accounts. For example, a demat account may attract maintenance costs, while the trading account may be subject to brokerage or transaction fees. Understanding these charges will help you to plan your trading activity and avoid confusion during settlements.
Choosing Your Trading Style
Your trading style determines the manner in which you utilize your accounts. If you invest delivery-based, your demat account will be active. If you wish to learn how to do intraday trading, your trading account will be kept active throughout the day. You may also use both styles depending on your objectives.
Conclusion
The difference between demat and trading accounts is simple yet very important. A demat account stores your shares for you. A trading account executes your orders. Together, they enable smooth trading and investment. Once you understand how to do intraday trading and how both accounts work, all your trading will become crystal clear, and you will choose your style according to your objectives.
