To put it in simple words; a Demat account is a storekeeper, whereas the trading account is the cashier. What a Demat account does, is store the shares and securities one deals within the market. It’s very similar to a savings bank account.
A Demat account contains the information of the shares and securities, just like a savings account which contains the account holder’s money.
A trading account, like a cashier, deals with the shares and securities. This account withdraws or deposits the shares from the Demat account and sells or buys into or from the stock market.
Isn’t that similar to a storekeeper and a cashier?
Now, it’s not every time that both Demat and a trading account go hand in hand. A Demat account is not necessary when dealing with options, currencies, or futures. For these, just a trading account should suffice. But that’s so only in the case of options, futures, and currencies. However, when dealing with shares of a company, both a Demat account and a trading account are a mandate.
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How does It Work
When one sells a share via a trading account, the money equivalent to the value of those shares is credited to the bank account that’s linked to the Demat account. Those shares are then debited from the Demat account.
In a similar way, when a share is purchased from the stock market, the value equal to that of the share is debited from the bank account. That share is then credited to the Demat account linked to that bank account.
Some Important Facts to be Aware of
- An individual can have multiple Demat accounts
- There are annual charges applicable for each Demat account
- There is a transaction fee for a successful deal
- A trading account can be opened only after having a Demat account
- Transfer of shares within a Demat account is very much possible
For a beginner, the use of a Demat account and a trading account can be overwhelming. However, this is a small and temporary part of a great journey. There are some basics one needs to be grasped, post which, the comfort and confidence in dealing in the stock market start multiplying.
Almost all financial institutions or companies offer a Demat account and a trading account. Both accounts run parallel in most cases, and come with complimentary support from the respective financial institutions.
Investors today have ample options of buying or selling shares right from their phones. There are industry experts who provide recommendations to investors on various sectors. The recommendations or suggestions can also be company-specific. The same can also be time-specific or tenure-specific.
Along with a Demat account and a trading account, an investor also can have a ready reference to the statistics of the shares sold and/or purchased. This helps him gauge the nature of a particular share. The trend that has been over a period of time, and as against other shares from parallel sector or industries.
Not just that, the recommendations that an investor gets, could also be from unexplored sectors, or unpopular sectors, which might be great in their performance in spite of low selling or high buying cost. After all, it’s the margin that matters in the game of stocks and shares.
The Stock and Share market is totally a different ball game as compared to other investment options like property, for instance. A Real estate investment usually, almost always comes with a long-term tag attached to it. It’s seldom, that a real estate investment gives a great ROI (Return on Investment) in a short period.
Investing in Stock and Shares, on the contrary, provides an investor, an array of options on this front. It comes with long-term as well as short-term investment options. Not just that, there are numerous investors, who go for a day’s tenure. Here, they buy and/or sell a share in a day to gain quite a decent return. And they have been doing that for years, earning a great margin.
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As they say, opening a Demat and a trading account is just a baby step. But that for sure is an important one. Start slow and small; learn the basics; earn a bit; invest that earning; research well before investing; research from all angles;
There are numerous free advisors in the market but beware. Free lunch is never actually free. It’s always advisable to go by one’s own instincts. Expert opinions or market tips are a part of information one is supposed to have handy before investing.
Remember, it’s just a part. It would surely be smart to combine that with the information that you have from different sources like Financial Daily’s, Company Reports, or the Internet.
Sounds Complicated? Go for it, and you will see it’s not at all. It’s just about the basics.