Whenever we talk about investment in the stock market. The very first question is "Do you have a Demat account?"
But do you know... Demat account and Trading account are 2 different entities. In day-to-day life we consider them one and the same. But it's not true.
Let's understand...
- What is a Demat account?
- What is a Trading account?
- What is the purpose of the Demat and Trading account?
- Are both accounts mandatory?
- What can we do with a Demat account without having any Trading account?
Short Video:
What is the Trading account?
The account which is needed by buying or selling the stocks is known as a Trading account. So, it is clear that we need a Trading account to trade in stocks.
What is the Demat account?
Once you bought some stocks, you have to store those stocks somewhere in electronic format. The account that needs to store the purchased stocks is known as the Demat account.
Are both accounts mandatory?
In general, we need both accounts (Trading + Demat) to do successful trading in stocks. But there are some scenarios where the trading account is not needed. An alone Demat account is enough. Those cases are as follows:
- If you have some old shares in physical form and if you need to convert those physical stares to electronic form. In that case, a Demat account is enough (since you are not buying stocks here, a trading account is not needed.)
NOTE: Dematerialization is the process of converting physical certificates to electronic bookkeeping. - If you are getting stocks from IPO (Initial Public Offering), your stocks will be stored in your Demat account directly. Here, No need of a Trading account as you are getting stocks directly from the company itself.
But, Once you get stocks from the above case (1) or case (2) and if you think of selling those stocks, again you will need trading account to sell those stocks.
and That's why we say, You need both Demat and Trading account for the complete successful operation.
Get your concepts clear and start investing...
If you have any doubt about investing, feel free to drop it in the comment box below. I will try my best to help you and smoothen your investment journey.
Thank you,
Akshay P Daga