If you’re venturing into the world of stocks and investments, you’ve likely come across terms like a Demat account, trading account, and maybe even a COMRIS account. But what are these accounts, and how do they differ? This guide will break down the differences between a Demat account and a trading account, shedding light on the various types of accounts required for trading in the stock market.
Whether you’re considering opening a Demat account, figuring out if you need a trading account for share trading, or trying to understand which accounts are necessary for options trading, this article will guide you through everything.
What is a Demat Account?
A Demat account, short for dematerialized account, is used to hold securities like stocks, bonds, mutual funds, and ETFs in electronic form. Instead of receiving physical certificates when you buy shares, they are credited electronically into your Demat account. This makes it easier and more secure to manage and transfer shares, as physical certificates can be lost or damaged.
How Does a Demat Account Work?
Holds securities electronically: When you buy shares, they are stored in digital form in your Demat account.
Demat App: Most brokers provide a Demat app to help you manage your holdings easily through your smartphone.
Demat account opening: You can open an online Demat account in a matter of minutes by choosing a suitable broker, providing the required documents, and completing the Know Your Customer (KYC) process.
Online Demat account: Once opened, you can manage your Demat account from anywhere through your broker’s platform or a dedicated Demat app.
For Mutual Funds, Do We Need a Demat Account?
In India, mutual funds can be held either through a Demat account or directly with the mutual fund company. A Demat account is not mandatory for investing in mutual funds, but it offers ease of managing all your securities in one place.
What is a Trading Account?
While a Demat account holds your shares, a trading account is used to buy and sell them. A trading account, in essence, acts as the best trading platform for buying and selling securities. It serves as a bridge between your bank account and your Demat account. When you buy shares, money is debited from your trading account, and the corresponding shares are credited to your Demat account. Similarly, when you sell shares, the shares are debited from your Demat account and the money is credited to your trading account.
Trading Account Meaning
Facilitates trading: This account is used to place buy or sell orders for stocks, options, futures, or any other securities.
Link to your bank and Demat accounts: A trading account is linked to both your bank account and your Demat account, ensuring smooth transactions.
Different types of trading accounts: Depending on your requirements, you may open different types of trading accounts, such as an equity trading account for stocks or a derivatives account for option trading and futures.
Demat vs Trading Account: What’s the Difference?
Understanding the difference between a Demat and a trading account is crucial for any investor looking to trade stocks or other securities. Here’s a breakdown:
| Feature | Demat Account | Trading Account |
| Purpose | Holds securities electronically | Facilitates buying and selling of securities |
| Function | Stores shares, bonds, and mutual funds | Places buy and sell orders in the stock market |
| Type of Assets Held | Stocks, bonds, mutual funds, ETFs, etc. | No assets are held; used only for transactions |
| Transactions | Shares are transferred in/out after trades | Money is debited/credited for buying/selling shares |
| Linkage | Linked with a trading account for seamless transfer | Linked to Demat and bank accounts |
Is Trading Account and Demat Account the Same?
No, a trading account and a Demat account are not the same. While a Demat account is used to hold shares in electronic format, a trading account is what you use to place buy and sell orders. They serve different purposes in the process of trading in the stock market, although both are essential for seamless transactions.
Do I Need a Trading Account for Share Trading?
Yes, if you want to trade in the stock market, you will need both a Demat account and a trading account. The Demat account is where your shares are stored, while the trading account is where you place orders to buy or sell them.
COMRIS Account vs Demat Account
A COMRIS account is related to commodities trading and is similar to a Demat account but used specifically for storing commodities in electronic form. If you’re only interested in equity trading, you’ll need a Demat account, but if you plan to trade commodities, you may also need a COMRIS account.
Which Type of Account Do You Need for Trading?
To trade in the stock market, you will need two accounts:
Demat account – To hold your securities in digital form.
Trading account – To facilitate buying and selling in the stock market.
If you’re also planning to trade in options or futures, you will need a derivatives trading account, which can be separate or integrated into your main trading account depending on the broker.
How to Open a Demat Account?
Demat account opening is a straightforward process, especially in today’s digital age. Here are the steps to open free Demat account online:
Choose a broker: Research and select a broker that offers the services you need, including a Demat app for convenient access.
Submit documents: You’ll need proof of identity, address, and income, along with a PAN card to open a Demat account online.
Complete KYC: The KYC process involves verifying your identity, often through an online process.
Link your bank account: Your bank account will be linked to both your Demat and trading accounts for seamless transactions.
Start trading: Once your account is set up, you can start buying and selling securities.
How to Do Trading in a Demat Account?
After setting up a Demat account and a trading account, you can begin trading:
Fund your trading account: Transfer money into your trading account from your bank account.
Place an order: Using the broker’s platform or a Demat app, you can place buy or sell orders for securities.
Settle trades: After a successful trade, shares will be credited or debited from your Demat account, while the corresponding money is adjusted in your trading account.
Option Trading and the Role of Trading Accounts
Option trading involves buying and selling options contracts, and you’ll need a derivatives trading account for this. While the Demat account may not directly come into play for options, you will still need a trading account to execute trades.
Conclusion
In summary, while both the Demat account and the trading account are essential for stock market activities, they serve different purposes. A Demat account is used to store shares in electronic form, while a trading account is used to buy and sell those shares. By understanding the key differences, investors can efficiently manage their portfolios and engage in various types of trading, from equities to option trading.
If you’re wondering which type of account to open for trading, the answer is clear: you need both! So go ahead and start the process of online Demat account opening with HDFC Sky and begin your investment journey today.
